Bid, Ask and the Spread
The two prices behind every quote, why the spread is the real cost of every trade, and how to keep that cost from eating your edge.
This lesson builds on: Currency Pairs and Metals
Look closely at any trading platform and you'll notice something the chart hides: there is never one price. There are always two. Understanding those two prices — and the gap between them — is understanding the true cost of your trading. Most beginners ignore the spread because it looks tiny. Professionals obsess over it because, compounded across hundreds of trades, it is often the difference between a profitable system and a losing one.
Two prices, always
At any moment, a market shows:
- The bid — the highest price buyers are currently willing to pay. This is the price you receive when you sell.
- The ask (or offer) — the lowest price sellers are currently willing to accept. This is the price you pay when you buy.
The ask is always above the bid. If EUR/USD shows a bid of 1.08500 and an ask of 1.08512, the spread is 1.2 pips.
Notice what this means mechanically: you always transact at the worse of the two prices. Buy, and you're filled at the ask — but the chart (and your floating P&L) is usually marked against the bid, so your position opens showing a small loss. That instant loss is the spread. Nothing went wrong; you just paid the cost of entry.
Why the spread exists
The spread is not an arbitrary fee — it's how market makers and liquidity providers get paid for a real service. Someone must stand ready to buy when you want to sell and sell when you want to buy, at any moment, in any size. That someone takes on inventory risk: the moment they fill your order, they hold a position that could move against them. The spread is their compensation for bearing that risk.
This explains the single most important pattern in spreads: they widen when risk rises and liquidity falls. More risk for the market maker means a bigger cushion demanded. In practice:
| Condition | Spread behaviour |
|---|---|
| London/New York overlap, quiet news day | Tightest of the day |
| Asian session on EUR/GBP-type pairs | Moderately wider |
| Daily rollover (~21:00–22:00 UTC) | Briefly very wide |
| Seconds around a major news release | Can widen 5–20× for a moment |
| Weekend open (Sunday) | Wide and erratic until liquidity returns |
| Exotic pairs, always | Structurally wide |
The spread as a business cost
Here's the arithmetic that should change how you trade. Suppose you trade EUR/USD with a 1.2-pip spread:
- On a trade targeting 60 pips, the spread is 2% of your target. Negligible.
- On a trade targeting 10 pips, it's 12% of your target. Significant.
- On a trade targeting 3 pips (scalping), it's 40% of your target. You now need to be right dramatically more often just to stand still.
This is why very short-term trading is so unforgiving for retail traders: the smaller your profit target, the larger the spread looms as a fraction of it. It's also why spreads should influence what you trade — a pair with a 15-pip spread needs a 15-pip head start on every single position.
Fixed vs variable spreads, and commissions
Brokers package this cost in different ways:
- Variable (floating) spreads — the norm. The spread breathes with market conditions: tight in liquid hours, wide in thin ones.
- Fixed spreads — offered by some market-maker brokers. Predictable, but usually wider on average than a good variable spread.
- Raw spread + commission — ECN-style accounts show near-zero spreads and charge a fixed commission per lot instead (commonly around $6–7 per standard lot round-trip, which is roughly equivalent to 0.6–0.7 pips). For frequent traders this is often cheaper and more transparent.
When comparing brokers or account types, compute the all-in cost: average spread plus per-trade commission, expressed in pips. That single number is comparable across everything.
Slippage: the spread's unpredictable cousin
The spread is the cost you can see. Slippage is the cost you can't: the difference between the price you requested and the price you actually received. In fast or thin markets, by the time your order arrives, the quoted price may be gone — you get filled at the next available one.
Slippage is usually small and occasionally in your favour, but around major news it can be brutal: a stop loss set 10 pips away might fill 30 pips away because prices simply skipped the levels in between. No broker, however honest, can fill you at a price that no longer exists.
Practical defences:
- Don't hold tight-stopped positions through scheduled high-impact news (you'll learn the economic calendar in the fundamental analysis lesson).
- Trade liquid instruments in liquid hours — everything in the sessions lesson applies directly here.
- Judge your broker's execution honestly: frequent, consistently unfavourable slippage in calm markets is a red flag; slippage during a payrolls release is physics.
Reading a quote like a trader
Put it all together and a full quote tells you a small story. EUR/USD bid 1.08500 / ask 1.08512:
- You can sell right now at 1.08500, or buy right now at 1.08512.
- Your cost of a round trip is 1.2 pips — the market must move 1.2 pips in your favour before you're at break-even.
- If that spread suddenly reads 6 pips, something changed: news is near, liquidity left, or rollover is happening. The spread is a live risk gauge, not just a cost.