What a Spread Is, and Who Decides It

The short answer

The spread is the gap between the price you can buy at and the price you can sell at. You cross it entering and again exiting, which is why a new position shows a small loss before the market has moved. It is set partly by how deep the market is and partly by the firm you trade through.

A price on a screen looks like one number. It is almost never one number.

Every quoted market gives you two: the bid, which is what someone is currently willing to pay you for the thing, and the ask, which is what someone currently wants in order to part with it. You sell at the bid. You buy at the ask. The ask is always the higher of the two.

The distance between them is the spread, and it is the first cost of every trade you will ever place.

Why a new position starts behind

This is the part that confuses people first, and it is worth being precise about, because nothing has gone wrong.

Suppose a market is quoted 1.0850 / 1.0852. These are hypothetical figures, chosen to make the arithmetic visible — no instrument is being described. You buy, so you pay the ask: 1.0852. You now own something that, if you immediately changed your mind, you could only sell at the bid: 1.0850.

The position shows a loss of two units of the last decimal place. The market has not moved. Nobody has charged you a fee. You are simply holding something you bought at the higher of two prices and could only sell at the lower of them.

That gap is the cost of entering, and you paid it on the way in. You will pay it again on the way out, because closing is just a trade in the other direction.

The practical consequence: a trade has to cover the spread twice before it is level. For a position held for weeks, that is noise. For a strategy placing forty trades a day, it is the dominant term in the arithmetic, and it is the reason two traders can make identical decisions and end the month in different places.

Who actually sets it

It is tempting to read a wide spread as a firm being greedy. Sometimes it is. More often it is not, and the distinction matters because only one of these is a problem you can solve by switching.

The market's part

A spread is, at bottom, a measure of how much disagreement and how much depth there is. Somebody has to be willing to stand on each side. If a great many participants want to trade an instrument and they are evenly matched, the two prices sit close together. If few do, whoever is willing to quote at all will quote defensively, because they are taking on something they may struggle to offload.

This is why the spread on a heavily traded currency pair at midday in London is a fraction of the spread on an obscure instrument at three in the morning. Same broker, same account, same screen. Different market underneath.

The firm's part

On top of that sits whatever the firm you trade through adds. Some brokers quote a raw market spread and charge a separate, stated commission. Others quote a wider spread and advertise "zero commission" — which is accurate, and also means the cost has been moved rather than removed.

Neither model is dishonest. They are different ways of presenting the same thing, and they are not directly comparable by looking at either number alone. A "commission-free" account with a 1.2 spread and a commission account with a 0.2 spread plus a fee are telling you two different halves of a story, and the only way to compare them is to add both halves up for the size and frequency you actually trade.

This is the single most common way people choose the more expensive option while believing they have chosen the cheaper one.

Spreads are not a constant

The number advertised on a broker's homepage is typically a typical or minimum spread, observed under good conditions. It is not a promise, and it is not what you will get at every hour of every day.

Spreads widen. Reliably, and for reasons that are mostly knowable in advance:

• Around scheduled news. In the moments before a major release, the people quoting prices do not know which way it will go either. They widen to protect themselves. This is not a conspiracy against you; it is the only rational response to being asked to guarantee a price across an event nobody has seen.
• At session edges and rollover. When one financial centre's main hours end and another's have not begun, there are fewer participants, and the book thins.
• In anything less traded. Minor pairs, small instruments, anything exotic.
• When something unexpected happens. The widening is largest exactly when you are most likely to want out.

That last point deserves to be said plainly, because it is where the cost lands hardest. A spread that is small when markets are calm and large when they are not is not an average you can plan around. It is a cost that is cheapest when you least need to act and most expensive when you most need to.

What this means for what you pay

A few things follow directly.

The spread is a cost of participating, not a fee for a service. You cannot opt out of it by choosing a different order type or being cleverer about entries. Buying at the bid is not available to you; that price exists for the person selling.

But you can change how much of it you pay. Not by avoiding it, but by trading when the book is deep rather than thin, by not placing orders into a release for no particular reason, and by comparing firms on the total of spread plus commission rather than on either number separately.

And you can change how much it matters. A cost that is fixed per trade matters in direct proportion to how many trades you make. This is why the same spread is close to irrelevant to one trader and decisive for another, and why "is this spread competitive" is an incomplete question without "relative to how I trade".

A note on advertised figures

We have deliberately not quoted a typical spread for any instrument in this piece.

Spreads vary by broker, by instrument, by account type and by hour, and a number stated here as though it were universal would be wrong for most readers by the time they read it. Where a broker publishes its own figures, those are the ones to compare — with attention to whether the number shown is a minimum, an average, or a figure observed under conditions you will not be trading in.

One regulatory development is worth knowing about as context for how this market is presented. In 2018 the European Securities and Markets Authority restricted how contracts for differences could be sold to retail clients, including leverage limits and a requirement for firms to carry a standardised risk warning. That original decision was time-limited and was subsequently renewed and then taken up in national rules; the relevant point here is simply that how these products are marketed to retail traders has been the subject of formal regulatory attention, and that the disclosure you now see on broker sites exists because of it rather than by choice.

What none of that changed is the spread itself. It is not a regulatory artefact or a marketing decision. It is the price of there being two sides to every trade.

Where this sits

The spread is one item in the full stack of trading costs. It is also not constant — see when spreads widen for the hours that cost the most.