What Exactly is Spread?
Guide beginners to understanding spread
What is Spread?
In trading — whether it's forex, stocks, crypto, or commodities — the spread is the difference between the buy price (ask) and the sell price (bid) of an asset.
It's essentially the hidden cost of making a trade, and it's how many brokers make money (in addition to commissions).
Example:
- Bid (Sell Price): 1.1050
- Ask (Buy Price): 1.1052
The spread = 1.1052 - 1.1050 = 0.0002 (or 2 pips in forex terms).
- Tight spreads (small difference) → cheaper to trade, better for active traders.
- Wide spreads (large difference) → costlier to enter/exit trades, common in low-liquidity markets.
- Spreads can be fixed (stay the same) or variable (change with market volatility).
Think of it like the difference between the price a shop buys a product from a supplier and the price it sells it to customers — the gap is the spread, and that's the profit margin.
