A spread is the gap between the bid price (what buyers will pay) and the ask price (what sellers want). It is the market maker's fee for providing liquidity and taking the other side of your trade. Every time you buy or sell, you cross this gap, which costs you money before the market even moves. Tighter spreads mean lower friction; wider spreads mean higher cost.
- Bid price
- The price at which you can sell to the market right now.
- Ask price
- The price at which you can buy from the market right now.
- Spread width
- The difference in pips between ask and bid, quoted as a single number.
Tight spread (0.5-1 pip on major pairs): liquid, low friction entry.
Wide spread (3+ pips on exotics): illiquid, high cost to enter or exit.
Spreads widen during news, low liquidity, and market stress, exactly when you most want to trade. A pair that trades at 1 pip can jump to 5 or 10 pips in seconds. Many beginners ignore spreads and wonder why their breakeven math does not work. The spread is a real cost that must be overcome before profit begins.
We price spreads into every trade idea and adjust position size accordingly. It is the first line item in real P&L.