Definition:
In Forex, the difference between the buying price and selling price of a currency pair is called the spread. It’s also known as the ‘buy-sell spread’ or ‘bid-ask spread’.
Changes in the spread are measured by small price movements called pips – which is any change in the fourth decimal place of a currency pair (or second decimal place when trading pairs quoted in JPY). It is not only the spread that will determine the total cost of your trade, but also the lot size.
| SELL | BUY |
| 1.20664 | 1.20680 |
A high spread means that there’s a big difference between the buy and sell price. Whereas a low spread means that there is a small difference between the buy and sell price.
Wide Spread vs Tight Spread:
EUR/USD
| SELL | BUY |
| 1.08522 | 1.08527 |
USD/TRY
| SELL | BUY |
| 14.65282 | 14.69402 |
Fixed Spread vs Floating Spread:
There are two types of spreads in the financial market: fixed spread and floating spread.
- Fixed spread is the difference between the bid and the ask prices that remain fixed even though the prices are changing.
- Floating spread is the difference between the bid and the ask prices fluctuating in a range and it usually follows the market dynamics.
Read What is margin?
Read What is pip?
