When trading forex on FXTRADING.com, one of the key costs to consider is the spread. This guide explains what spreads are, how to measure them, and how they affect your trading.
What is a Currency Spread?
A forex spread is the difference between the current Ask and Bid quotes: spread = Ask − Bid. From your perspective, Ask is the price used to buy and Bid is the price used to sell. A quote is not a guarantee of the eventual execution price.
Spread Formula:
Ask − Bid
Key Terms to Understand
Bid price: the quote used when you sell the base currency, including closing a Buy position.
Ask price: the quote used when you buy the base currency, including closing a Sell position.
Base Currency: The first currency in a pair (shown on the left)
Quote/Counter Currency: The second currency in a pair (shown on the right)
For example, in the EUR/USD pair:
EUR is the base currency
USD is the quote/counter currency
If Bid is 1.08500 and Ask is 1.08520, the spread is 0.00020: 2 pips for EUR/USD, or 20 points on a five-decimal quote. A platform point and a forex pip are different units.
Reading Bid, Ask and chart lines in MT4 and MT5
Compare the current Bid and Ask for the exact symbol in Market Watch. A Buy position normally opens at Ask and closes at Bid; a Sell position normally opens at Bid and closes at Ask. This also explains why a newly opened position can initially show a loss even if the market has barely moved.
On MT4 desktop, the chart Properties window places the Ask-line display option in the Common tab. Its forex bars are built from Bid quotes. Showing the Ask line adds the latest Ask quote; it does not redraw historical candles using Ask prices.
On MT5 desktop, the chart Properties window has a Show tab with separate Bid- and Ask-line display options. Forex bars are generally built from Bid quotes; some other instruments can use Last prices. Check the relevant symbol rather than treating every chart as an Ask chart.
The gap between the current Bid and Ask lines represents the current spread. Line colours and styles depend on chart settings, and changing the timeframe does not change the spread itself. A current quote line is not a record of the spread at every earlier candle.
If a candle appears to touch a level but an order or stop behaves differently, check which quote side applies. A chart alone cannot establish the relevant historical Bid/Ask or the execution result. For a review, retain the exact symbol, order reference and time with time zone; do not conclude that a trade was executed incorrectly from the candle image alone.
Factors Affecting Spread Size
Several factors can influence the size of spreads:
Market Volatility: Higher volatility usually means wider spreads
Liquidity: Major pairs like EUR/USD typically have tighter spreads than exotic pairs
Time of Day: Spreads tend to be tighter during major market sessions and wider during off-hours
Economic Events: News releases and economic announcements can temporarily widen spreads
How Spreads Impact Your Trading
Understanding spreads is crucial because:
The spread is effectively a cost you pay to enter a position
Wider spreads mean you need a larger price movement to break even
Frequent trading strategies are more affected by spread costs than long-term strategies
Calculating potential profit should always account for the spread
Calculating the Cost of a Spread
To calculate the monetary cost of a spread:
Determine the spread in pips
Multiply by the pip value for your position size
Convert to your account currency if necessary
Example: For a 2 pip spread on EUR/USD with a standard lot (100,000 units), the cost would be 2 pips × $10 per pip = $20.
This $20 illustration assumes EUR/USD, a contract size of 100000 units per lot and a USD-denominated account. The pip value and any currency conversion must be checked for the exact instrument, volume and account currency. Commission and applicable financing are separate costs, and spreads can change before execution.