Understanding Forex Spreads: Fixed vs Variable

The spread is the primary cost of trading forex for most retail traders. It is the difference between the price you can buy at (ask) and the price you can sell at (bid). Understanding spreads — and the difference between fixed and variable spreads — helps you choose the right account.

What Is the Spread?

Spread = Ask Price − Bid Price

If EUR/USD shows a bid of 1.0848 and an ask of 1.0850, the spread is 2 pips. That 2-pip difference is the cost of opening the trade. You need the price to move 2 pips in your favor just to break even.

Spreads compensate liquidity providers and brokers for the risk of holding the opposite side of your trade — they are how market makers earn money when they don't charge a separate commission.

Fixed Spreads

Fixed spreads stay constant regardless of market conditions, as long as the broker can maintain them.

• Advantages: predictable costs; easier to plan strategies; often on market-maker accounts
• Disadvantages: higher than variable spreads during calm markets; may "freeze" or widen during extreme volatility; often come with requotes

Variable Spreads

Variable (floating) spreads change constantly based on liquidity, volatility, and news.

• Advantages: often very tight during liquid periods (e.g., EUR/USD at 0.1–0.5 pips); reflect true market conditions; usually no requotes on ECN/STP accounts
• Disadvantages: widen sharply during news; harder to predict costs; can briefly exceed 10 pips during high-impact releases

Spread Comparison

When Spreads Widen

Spreads widen during major news releases (NFP, CPI, central bank decisions), session rollover (~17:00 New York), low-liquidity hours (Sydney session, holidays), and geopolitical shocks. A 1-pip spread on EUR/USD can briefly jump to 10+ pips in seconds around NFP.

How Spreads Affect Strategy

• Scalpers need tight spreads — variable ECN accounts are best
• Swing traders are less sensitive — small spread differences matter less over multi-day holds
• News traders should know spreads will spike and plan accordingly

Total Cost of Trading

Total Cost = Spread + Commission + Swap (if held overnight)

A "0.0 spread" account charging $7 per lot commission can cost more than a 0.5-pip spread account with no commission. Open demo accounts at two or three brokers, record spreads on your favorite pair during the same sessions, and test during news to see how wide spreads really get.

Spreads are unavoidable but manageable. Choose the model that fits your style and never ignore the spread when calculating break-even.