Bid, ask and the gap in between
Every quoted market has two prices at once. The bid is the highest price a buyer is currently willing to pay. The ask (or offer) is the lowest price a seller will accept. The spread is what separates them, and it is the market maker's compensation for standing in the middle.
- EUR/USD 1.08500 / 1.08508 → 0.8 pip spread
- BTC/USD 64,010 / 64,030 → $20 spread
- A thin altcoin can show a spread of several percent
What the spread actually costs you
Multiply the spread by your position size and by how often you trade. For a long-term holder, spread is a rounding error. For an intraday trader taking several trades a day, it is often the largest single expense in the account.
A 1-pip spread on a standard lot costs $10 per round trip. Take four trades a day, five days a week, and that is $800 a month paid before any strategy edge shows up.
Fixed vs variable spreads
Fixed spreads stay the same regardless of conditions, which is predictable but usually wider on average. Variable spreads track real market liquidity — tight in the London/New York overlap, much wider around news or in the Asian session on European pairs.
How to keep spread costs down
- Trade the instrument during its deepest liquidity hours
- Prefer major pairs and large-cap assets over exotics
- Use limit orders so you are the one posting the price
- Include the spread in your target, not as an afterthought