Many people who start trading Forex often overlook the importance of spreads, which is a fundamental concept that helps us plan our trades better.

The spread is the difference between the selling price (Bid) and the buying price (Ask) of any asset, whether it’s currency, stocks, or commodities. It is the price margin that buyers and sellers must accept when conducting a transaction.

For example, if we want to buy EUR/USD at 1.05680, but if we want to sell immediately, the price we get is 1.05672. This difference of 0.8 pips is the spread, which is the broker’s profit and our cost.

The spread is a good indicator of market liquidity. When the EUR/USD market is normal, the difference is usually very small, around 0.001%. However, if we see the spread widen to 1-2%, it indicates lower market liquidity.

There are two types of spreads we will encounter on trading platforms: fixed spread and variable spread.

A fixed spread is predetermined and does not change with market conditions. The advantage is that we can calculate costs accurately, but the downside is that Requotes often occur, which can block our system until we accept the new price during high volatility.

A variable spread changes according to market movements. Brokers pass on prices directly from the market without interference. The advantage is no Requotes and lower costs when the market is highly liquid. The disadvantage is that the spread can fluctuate quickly, making speculation more difficult.

Which one is better? It depends on the individual. Beginner traders or those who prefer small-volume trading often benefit more from fixed spreads. Traders who trade frequently or want to avoid Requotes should use variable spreads.

The key is to choose a spread that fits your strategy. Remember, the more the spread fluctuates, the harder it is to profit. Therefore, it’s best to select popular currency pairs like EUR/USD or GBP/USD, which tend to have more stable spreads.

Once we understand that the spread is the price difference affecting our costs and profits, trading becomes about planning and calculation, not gambling. Those who deeply understand the system will have a higher chance of success.