Forex Spread Explained: What It Is and How It Affects Your Trading
The spread is the difference between the bid (sell) and ask (buy) price of a currency pair. It’s the primary cost of trading forex and directly impacts your profitability.
What Is a Spread?
If EUR/USD has a spread of 0.8 pips:
- Bid: 1.10500 (what you sell at)
- Ask: 1.10508 (what you buy at)
- Spread: 0.00008 (0.8 pips)
Every trade starts at a small loss equal to the spread. You must recover this cost before your trade becomes profitable.
Average Spreads by Pair
| Pair | Typical Spread (peak hours) | Spread (quiet hours) |
|---|---|---|
| EUR/USD | 0.1–0.5 pips | 0.5–1.0 pips |
| GBP/USD | 0.3–0.8 pips | 0.8–1.5 pips |
| USD/JPY | 0.2–0.6 pips | 0.6–1.2 pips |
| USD/CAD | 0.4–1.0 pips | 1.0–2.0 pips |
| XAU/USD | 1.0–3.0 pips | 3.0–8.0 pips |
| GBP/JPY | 0.8–2.0 pips | 2.0–4.0 pips |
Fixed vs Variable Spreads
Fixed Spreads
- Remain constant regardless of market conditions
- Offered by market maker brokers
- Predictable costs but may widen during news
- Higher overall spread than variable during normal hours
Variable Spreads
- Fluctuate based on liquidity and volatility
- Offered by ECN/STP brokers
- Tight during peak hours (London/NY overlap)
- Can widen significantly during news events
How Spreads Change Throughout the Day
Spreads follow forex session liquidity:
| Time (UTC) | Session | EUR/USD Spread |
|---|---|---|
| 00:00–07:00 | Asian | 0.8–1.2 pips |
| 07:00–12:00 | London only | 0.3–0.6 pips |
| 12:00–16:00 | London + NY overlap | 0.1–0.4 pips |
| 16:00–21:00 | NY only | 0.4–0.8 pips |
| 21:00–00:00 | Sydney | 1.0–1.5 pips |
Best time to trade: London + NY overlap (12:00–16:00 UTC) offers the tightest spreads.
Spread Cost by Strategy
Scalping (5-pip target, EUR/USD spread 0.3 pips)
- Spread cost: 0.3 pips = 6% of target
- You need a 60% win rate just to break even on spread costs
Day trading (30-pip target, EUR/USD spread 0.5 pips)
- Spread cost: 0.5 pips = 1.7% of target
- Spread impact is minimal
Swing trading (100-pip target, EUR/USD spread 0.8 pips)
- Spread cost: 0.8 pips = 0.8% of target
- Spread is almost irrelevant
Spread Cost Example
100 trades on EUR/USD:
- Scalper (5-pip TP, 0.3 pip spread): 100 × 0.3 = 30 pips lost to spreads
- Day trader (30-pip TP, 0.5 pip spread): 100 × 0.5 = 50 pips lost
- Swing trader (100-pip TP, 0.8 pip spread): 100 × 0.8 = 80 pips lost
While the swing trader loses more total pips to spread, the cost as a percentage of target is much lower.
How to Minimize Spread Costs
- Trade during peak hours — London/NY overlap gives you the tightest spreads
- Focus on major pairs — EUR/USD, USD/JPY, GBP/USD have the lowest spreads
- Avoid news events — Spreads can widen 5–10× during NFP, CPI, FOMC
- Choose the right broker — ECN/STP brokers offer variable spreads that are tight during normal hours
- Use limit orders — Paying the spread on both entry and exit with market orders doubles your cost
Track Spread Impact in Your Journal
Most traders underestimate how much they pay in spreads over time. Logging your actual entry and exit prices alongside the prevailing spread helps you calculate your true transaction costs.
Our trading journal records pair and trade details so you can analyze the cost impact of spreads on your strategy. Use the session calculator to find the best times to trade your favorite pairs with minimum spreads.