The spread is the difference between the bid price, where you can sell, and the ask price, where you can buy. Measured in pips, it is a cost you pay on every trade: you enter slightly on the wrong side of the market and must earn back the spread before the trade shows any profit.
Key takeaways
- The spread is the gap between the bid (sell) and ask (buy) price, and you pay it on every trade the moment you open a position.
- It tightens on liquid majors and in active sessions, and widens on exotics, in quiet hours, and around major news.
- The spread hurts small-target strategies most - always backtest with the spread applied, or fast systems will look far better than they are.
Bid, ask, and the gap between
At any moment there are two prices: the bid (lower) and the ask (higher). You buy at the ask and sell at the bid, so the moment you open a trade you are down by the spread. If EUR/USD shows a bid of 1.1050 and an ask of 1.1051, the spread is one pip. The full mechanics are covered in bid and ask price explained.
What makes spreads move
- Liquidity - heavily traded majors like EUR/USD have the tightest spreads; exotic pairs are much wider.
- Time of day - spreads tighten during active sessions and widen in quiet overnight hours.
- News - around major releases, liquidity thins and spreads can spike dramatically.
Why the spread matters for your strategy
The spread is a fixed toll, so it hurts most when your target is small. A scalping strategy aiming for 5 pips pays a huge percentage of its gain in spread; a swing strategy aiming for 150 pips barely notices it. This is why fast, small-target strategies must be tested with realistic costs, or they look far better than they are.
Important: a backtest that ignores the spread is lying to you. The strategies most flattered by that lie are exactly the ones that fail live - the fast, small-target systems where the spread is a big slice of every trade.
Backtest with the spread applied
The only honest way to know whether a strategy survives its trading costs is to include them. FxBacktest applies the spread on every simulated trade, so your session report reflects the real net result, not an idealized one. Testing this way means the edge you see is the edge you can actually keep - a core part of avoiding common backtesting mistakes.
For measured numbers rather than examples, what spreads really cost profiles all 25 instruments in the simulator: EUR/USD averages 0.45 pips (about $4.50 per round turn on a standard lot), and the spread consumes 1.2% of the hourly range at 13:00 UTC but 26.7% at 21:00 UTC.
Spread FAQ
What is the spread in forex?
The difference between the bid (sell) and ask (buy) price, measured in pips. It is a cost on every trade - you must recover it before the position shows profit.
Why does the spread widen?
When liquidity falls or uncertainty rises - during news, market opens and closes, and quiet hours. Majors have the tightest spreads; exotics the widest.
Does the spread matter for backtesting?
Yes. Ignoring it overstates profit, especially for scalping. A realistic backtest applies the spread on every trade so results reflect the true cost.
What is a good spread in forex?
Roughly 0.5-1 pip on EUR/USD (near zero on raw/ECN with commission), ~2-4 pips on crosses like GBP/JPY, and 10+ on exotics. The tighter the spread relative to your target, the less it erodes your edge.