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Bid, Ask and the Spread: What You Actually Pay
The bid ask spread is the first cost every forex trader meets, and it's the one you pay on literally every single trade, win or lose. If you've already covered what a pip is in this course, the spread is the next building block — it's how that pip value turns into a real cost the moment you click buy or sell.
This lesson explains what bid and ask actually mean, why the gap between them exists, and how to check what you're really paying before you risk any money.
What Bid and Ask Actually Mean
Every tradable currency pair shows two prices at once:
- Bid — the price you can sell at right now
- Ask (sometimes called the "offer") — the price you can buy at right now
The ask is always slightly higher than the bid. That gap is the spread, and it's usually measured in pips (see the earlier lesson on pips if that word is new to you).
So if EUR/USD is quoted as 1.0850 / 1.0852:
- You can sell (go short) at 1.0850
- You can buy (go long) at 1.0852
- The spread here is 0.0002, or 2 pips
This isn't a broker glitch or a hidden fee — it's how virtually every two-way market works, from currencies to shares to your local currency exchange kiosk at the airport. Someone is always willing to buy a bit lower and sell a bit higher than the "true" mid-price, and that gap is their compensation for standing ready to trade with you instantly.
Why You Start Every Trade Slightly Behind
Here's the part that surprises a lot of new traders: the moment you open a trade, you're already at a small loss.
Say you buy EUR/USD at the 1.0852 ask in the example above. If you tried to close that trade immediately, you'd have to sell — at the bid, which is 1.0850. You'd be down 2 pips before the market has moved at all.
This matters because it changes how you should think about a "winning" trade. Your position isn't breakeven at your entry price — it's breakeven at entry price *plus the spread*. A trade that moves 1 pip in your favour hasn't made you money yet if the spread was 2 pips; it's just clawed back half the cost.
For short-term or high-frequency strategies, this matters a lot. For a trade you plan to hold for days or weeks, a 1-2 pip spread is nearly irrelevant next to the price move you're aiming for. Matching your strategy's holding period to how spread-sensitive it is is a core early skill in this course.
What Moves the Spread Wider or Narrower
Spreads aren't fixed in stone. They shift constantly based on:
- The pair itself — majors like EUR/USD or GBP/USD are typically tighter than minors or exotics, simply because more volume flows through them
- Time of day — spreads are usually tightest during the London-New York overlap and can widen noticeably during the Asian session or thin holiday trading
- News and volatility — spreads often widen sharply seconds before and after high-impact releases like NFP or central bank decisions, as liquidity providers pull back
- Market open — the Sunday evening market open can see temporarily wider spreads until liquidity builds up
- Account type — some brokers offer tighter "raw" spreads with a separate commission, others fold everything into a slightly wider all-in spread
None of this is something you memorise once and forget — it's something you get a feel for by watching your own platform's quotes at different times, and by checking live conditions rather than assuming yesterday's spread still applies today.
How Different Account Types Package the Spread
Brokers generally price the spread in one of two ways, and it's worth knowing both before you pick an account:
| Model | How it works | Example | |---|---|---| | All-in spread | Spread is slightly widened to include the broker's fee; no separate commission | IG's standard platform accounts typically work this way | | Raw spread + commission | Spread is kept very tight (closer to the interbank rate), with a fixed commission charged per lot instead | Pepperstone's Razor account on MetaTrader is a well-known example of this structure |
Neither structure is automatically cheaper — it depends on your trade size, frequency, and the pair you're trading. A raw-spread-plus-commission account can work out cheaper for active traders on major pairs, while an all-in spread can be simpler for occasional or larger swing trades. This is exactly why comparing brokers on spread alone is misleading — you need the total cost, spread plus commission plus any swap, side by side.
Where to See the Bid Ask Spread on Your Platform
You don't need to calculate the spread by hand every time — your platform shows it live:
- MetaTrader (used by brokers including Pepperstone) shows bid and ask on the Market Watch window, and you can add a "spread" column to see it in pips directly
- IG's own platform displays both prices on the deal ticket before you confirm a trade, along with the spread in points
- Most platforms also let you set a spread alert, useful if you only want to trade when conditions are tight
Get into the habit of glancing at the live spread before every trade, not just checking it once when you opened the account. It moves.
Checking Your Real Cost Before You Trade
Once you understand bid, ask and spread, the natural next question is: what does this actually cost me in pounds, on my typical trade size, on my broker? That's not something to guess at from a marketing page.
- Use PipTax's cost tool at /audit.html to see live spread and commission data translated into an actual cost per trade
- Compare account types and brokers side by side on /brokers/index.html rather than relying on headline "from X pips" claims
- If you want to understand exactly how PipTax calculates these comparisons, the methodology is laid out openly on /methodology.html
Trading forex is genuinely risky, and most retail accounts lose money — no amount of spread-shopping changes that fact. But understanding the bid ask spread is a free, permanent edge: it stops you misreading a small move as profit, and it lets you judge cost claims properly instead of taking them on trust.
Key Habits to Take Into the Next Lesson
Before moving on in the course, make sure you can:
- Read a live quote and correctly identify which side is bid and which is ask
- Explain why a new position starts slightly below breakeven
- Name at least two things that widen spreads
- Describe the difference between an all-in spread account and a raw-spread-plus-commission account
The next lesson in Module 1 builds directly on this by looking at how spread and commission combine with swap rates into your full cost of holding a trade overnight.
Key takeaways
- The bid ask spread is the gap between the price you can sell at (bid) and the price you can buy at (ask) — it's built into every quote, not an extra fee tacked on afterwards
- You start every new trade at a small loss equal to the spread, because you buy at the higher ask and would immediately have to sell at the lower bid
- Spreads are usually quoted in pips and widen or narrow depending on the pair, the time of day, and market volatility
- Some brokers widen the spread instead of charging a separate commission (like IG's standard account), while others charge a tighter raw spread plus commission (like Pepperstone's Razor account on MetaTrader)
- You can't compare two brokers fairly by spread alone — you need to add commission and check swap rates too, which is what PipTax's cost tool does automatically
- This lesson builds on 'what is a pip' from earlier in Module 1 — understanding pips is what lets you translate a spread into an actual pound-and-pence cost
Frequently asked questions
- Is the spread the only cost of trading forex?
- No. The spread is usually the biggest visible cost on a single trade, but you may also pay a separate commission (common on raw-spread accounts) and overnight swap charges if you hold a position past the daily rollover. Always add all three together before judging whether a broker or account type is cheap.
- Why is the ask price always higher than the bid price?
- Because the broker (or the liquidity providers behind them) needs a margin to make the market. The bid is what they're willing to pay to buy the currency from you; the ask is what they'll sell it to you for. The gap is their compensation for providing that two-way price constantly, even in fast-moving markets.
- Do spreads change during the day?
- Yes. Spreads are usually tightest during peak liquidity, such as the London-New York overlap, and can widen sharply around news releases, at market open on Sunday evening, or in thin holiday trading. Always check the live spread on your platform before placing a trade, especially around scheduled news.
- Is a fixed spread better than a variable spread?
- Not automatically. Fixed spreads give certainty but are usually set wider to cover the broker during volatile periods. Variable (floating) spreads can be tighter in calm markets but widen unpredictably during news or low liquidity. Which suits you depends on your strategy and how much you trade around news events.
- How do I compare the real cost of the spread between brokers?
- Look at the same pair, same account type, and same time of day, then convert the spread into pips and into money for your typical trade size. PipTax's cost tool at /audit.html does this comparison for you using live data, so you're not just eyeballing quoted spreads on marketing pages.