Just realized that the forex spread is very important for successful trading. If you don't truly understand how it works, you'll lose money unknowingly even if your trades are correct.

In short, the forex spread is the difference between the bid price and the ask price of a currency pair. This is how brokers make money from it. When you buy EUR/USD at 1.05680 but sell it immediately at 1.05672, you'll lose 0.8 pips right away. That is your spread.

Think of it like this: if you buy gold at $500, to make a profit, you need to sell it at least at $501. The $1 difference is the spread.

What I find interesting is that the spread can also tell us about the market's liquidity. A normal currency market usually has a spread of about 0.001%. But if you see a spread of 1-2% or more, it indicates that the market is cold and liquidity has decreased significantly.

There are now two types of spreads you need to know. The first is fixed spread, which brokers set in advance. The rate remains constant all the time. The advantage is that you know your costs exactly and it’s easy to calculate. But the downside is that during high volatility, brokers will requote you, meaning they close your system and won't allow trading until you accept the new price, which is often worse than the original.

The second type is variable spread or floating spread, which is the rate that changes constantly according to market conditions. Brokers do not control it; it depends on supply and demand. The advantage is no requotes, and during normal market conditions, spreads are usually cheaper than fixed spreads. The disadvantage is that spreads can spike dramatically during major news events, such as unemployment reports, where the spread might jump from 2 pips to 20 pips in an instant.

For people who prefer to trade small amounts or trade frequently, fixed spreads might be better. But if you trade large volumes and very often, variable spreads are more advantageous because the overall costs tend to be lower.

The final tip is to choose a broker whose spreads don't fluctuate too much, and to trade popular currency pairs like EUR/USD or GBP/USD, because these pairs have high liquidity and more stable spreads. A good understanding of spreads will help you trade wisely and avoid unnecessary losses.