What spread is and how it is paid
Spread is the difference between bid and ask. Bid is what the broker pays to buy the instrument; ask is what the broker charges to sell. The Forex pair is bought at the ask and sold at the bid — the gap between them is paid on every trade entry, instantly.
This is not a fee billed separately. It is the structure of the price quote itself. The broker's margin is the difference between what they take in (when traders buy at ask) and what they pay out (when traders sell at bid), aggregated across order flow.
A spread of 1.2 pips on EUR/USD on a 1 standard lot position is $12 — paid the moment the position opens. The market must move 1.2 pips in the trader's favour before the position reaches breakeven.
Spread cost across a trading session
Spread is not a one-time cost. It applies to every round-trip trade. A trader running 20 trades per week on EUR/USD at an average 1.2-pip spread on 1 standard lot pays 20 × 1.2 × $10 = $240 per week in spread alone.
On a $10,000 account, that is a 2.4% weekly drag — before any consideration of swap, commission, or strategy edge. Annualised at 50 trading weeks, the drag is 120% of starting equity. The strategy must produce more than 1.2 pips of net positive movement per trade just to break even on cost.
Reducing trade frequency is the most direct lever for cutting cost. Cutting from 20 trades per week to 10 halves the cost; cutting from 1.2-pip spread to 0.5-pip spread (a tighter broker or a different account type) more than halves it again.
Variable spread and when it widens
On variable-spread accounts (the common ECN and STP structure), the floor on EUR/USD typically sits at 0.1–0.3 pips during the London-New York session overlap, roughly 13:00–17:00 UTC. Outside those hours, spread widens as market-maker depth retreats.
During major data releases — US Non-Farm Payrolls, CPI, FOMC decisions — spread can reach 5–10 pips on EUR/USD as market makers reduce quoted size to limit adverse selection. Spread widening of 5 to 10 times the normal level during the seconds around a release is typical, not exceptional.
A Stop-loss placed at 10 pips during a 5-pip spread environment executes at market price after trigger, not at the stop level. The effective loss may be 15 pips rather than 10. This is mechanics, not malfunction — the broker is quoting the spread the underlying liquidity supports, and the Order types that depend on tight spreads (market and stop orders specifically) carry the slippage when liquidity withdraws.
Fixed versus variable spread
Fixed-spread accounts guarantee the quoted spread regardless of conditions but price it higher than the variable floor. Typical figures: 1.5–2 pips fixed on EUR/USD versus 0.1–0.3 pips floor on a variable account during peak liquidity.
Fixed spread offers cost predictability through data releases and low-liquidity periods. Variable spread is materially cheaper during peak hours but exposes the trader to widening at the worst times.
The correct comparison is the average paid across the actual trading pattern — not the minimum advertised. A trader who holds positions through Wednesday rollover and US data releases pays the variable account's worst spreads, not its tight floor; for that pattern, fixed spread may be cheaper on average. A trader who closes before every release on a variable account pays the floor consistently.
Spread on instruments other than forex
CFD positions on equity indices, commodities, and crypto all carry spread structured the same way: bid-ask gap paid at entry. The figures differ. A major-index CFD typically quotes at 0.4–1.5 points spread; a crude oil CFD at 3–6 cents per barrel; a major crypto pair at 0.05–0.5% of the price.
Index spread in points is comparable to forex spread in pips only after multiplying by the contract value per point. The S&P 500 at 5,200 with a 0.5-point spread on a contract worth $10 per point is a $5 cost — closer to the EUR/USD spread cost than the raw figure suggests. The unit changes; the principle does not.