I just gained a deeper understanding of spreads and I think I should share it with everyone because knowing what the spread actually is can really help us plan our trades better.

In short, the spread is the difference between the selling price (Bid) and the buying price (Ask) of a currency, stock, or other assets. Whether trading forex or buying digital currencies, the spread is always this difference. For example, if we buy EUR/USD at 1.05680 but can only sell at 1.05672, the difference is 0.8 pips—that's the spread we have to bear, and the broker takes this part.

What we need to know is that the spread tells us how liquid the market is. Normally, the spread in forex is very narrow, about 0.001%. But if you encounter a market with a spread of 1-2%, it indicates low liquidity, which means trading becomes more difficult and riskier.

When trading, we will encounter two types of spreads: fixed spread and variable spread (floating spread). Fixed spread is the amount set by the broker from the start and does not change. The advantage is that we can clearly calculate our costs, but the downside is that during high volatility, the broker may requote (block the system and ask for acceptance of a new price), which can disrupt our trading plan.

On the other hand, variable spread changes according to market conditions. The advantage is that there are no requotes, and during calm market periods, the cost may be lower than fixed spreads. However, the disadvantage is that during major news events (like NFP), the spread can spike rapidly from 2 pips to 20 pips, which is not suitable for scalpers or beginners.

If asked which is better, it depends on each trader’s style. Retail traders who prefer small trades might find fixed spreads better, but large traders who trade frequently during peak market times might choose variable spreads.

My final advice is to choose a broker with relatively stable spreads and trade major currency pairs like EUR/USD or GBP/USD because these pairs tend to have narrower spreads. Less common currency pairs usually have wider spreads. Also, a good understanding of spreads will help us trade with a plan and avoid mistakes because forex trading is a real financial transaction, not gambling. So, everything should be carefully considered.