Honestly, if you’re new to financial trading, the concept of spread is one of the first things you need to understand. It’s not just a number on your screen—it’s actually a hidden cost you pay every time you open a trade.

So what exactly is spread? Simply put, it is the difference between the bid price (buy price) and the ask price (sell price) of a currency pair. For example, when you see EUR/USD at 1,1021/1,1023, the spread here is 2 pips, or 0,0002. That is the broker’s profit from each trade you make.

There are two types of spreads you’ll encounter. The first is fixed spread—it never changes, allowing you to predict trading costs accurately. This is great if you have limited capital, but the downside is that when the market moves quickly, you may run into requotes or slippage. The second is floating spread, which always changes according to market conditions. The advantage is more transparent pricing, but it isn’t suitable for scalpers because the rapidly widening spread will eat into your profits.

Calculating the actual spread is also not difficult. If you trade 1 contract of EUR/USD with a spread of 0,9 pips, you’ll have to pay about 9 USD. With 10 contracts, the cost will be 90 USD. What’s important is that when comparing different exchanges, you must ensure the trading size is the same, because otherwise the numbers won’t be meaningful.

One thing to note is that spread isn’t always stable. There are times when it widens significantly, called spread widening. This often happens when market liquidity is thin, such as between trading sessions or before important economic news is released. At that time, the spread can increase from 1-2 pips to 5-10 pips or even more. If you’re a short-term trader, you need to be careful during these periods because it will quickly erode your profits.

There are three main factors that affect spread: liquidity, trading volume, and price volatility. When liquidity is high, with many buyers and sellers, the spread is narrower. Conversely, when liquidity is low, the spread widens. Popular currency pairs like GBPUSD or EURUSD often have smaller spreads than less-traded pairs.

So how can you reduce spread costs? The simplest way is to trade only during hours when the market has high liquidity, when many participants are active. At that time, market makers compete with each other to narrow the spread and attract customers. The second way is to avoid trading less popular currency pairs. If you only trade major pairs, you’ll see lower spreads and better trading conditions.

Beyond the foreign exchange (forex) market, spread also exists in other markets. In the stock market, it is the difference between a stock’s buy price and sell price. In the bond market, the spread is the yield difference between two bonds. In the futures commodities market, it is the price difference between futures contracts with different delivery dates.

In summary, understanding spread is essential for any trader. It not only affects your trading costs but also affects your final profits. If you’re just starting out, it’s best to test your trading strategies on a demo account before applying them in real trading. This will help you better understand how spread works and how it impacts your trades.