Spread is the key to trading - Understanding the underlying mechanism in depth

2026-02-24 18:18:20

The spread is the difference between the bid price and the ask price displayed for every traded asset, whether it’s currency, stocks, or cryptocurrencies. Understanding the spread is fundamental to successful trading because it directly relates to trading costs and your ability to profit.

The spread shows opportunity and cost

In a typical trading environment, when you look at the trading screen, you’ll see two prices - the bid price at which traders can sell, and the ask price at which traders can buy. The spread is the gap between these two prices.

For example: if you want to buy EUR/USD at 1.05680 but have to sell at 1.05672, this difference (0.8 pips) is the spread. The broker profits from this difference. If you close the trade immediately, you lose this amount—similar to buying gold at $500 and immediately selling at $499. This loss is an unavoidable trading cost.

The spread indicates market liquidity and volatility

The spread isn’t just a cost—it’s an important indicator of market health. Under normal conditions, the forex market’s spread is about 0.001%. But during volatile times, the spread can widen to 1-2% or more.

For example, when Non-Farm Payrolls (NFP) data is released, volatility spikes immediately, causing the spread to jump from 2 pips to 20 pips in an instant. This signals that trading conditions have changed significantly, and you need to be more cautious.

Fixed Spread - Stable but with traps

A fixed spread is set by the broker and does not change with market conditions. The main advantage is that you can calculate your trading costs precisely and reliably.

Advantages:

Allows for predictable cost planning
No surprises during normal trading
Suitable for frequent traders

Disadvantages:

Requotes often occur—brokers may “block” your system and ask you to accept new prices when the market moves quickly, often worse than the original
During major news events, brokers may widen the spread instantly, making the “fixed” spread not truly fixed

Variable Spread - Flexible but requires adaptation

A variable spread changes according to market conditions. Brokers send real market prices without interference, so the spread fluctuates based on supply and demand.

Advantages:

No annoying requotes
During calm markets, spreads are usually lower than fixed spreads
Professional and fast traders benefit when liquidity is high
More transparent—your prices match the real market

Disadvantages:

During major news, spreads can widen suddenly, making quick speculation riskier
Not ideal for beginners unfamiliar with uncertainty
Harder to plan costs in advance

Which one suits your trading style?

The honest answer is—it depends on you. There’s no “best” choice for everyone.

For retail and beginner traders: Fixed spreads are generally better, providing confidence in planning and avoiding confusing requotes.

For professional and large traders: Variable spreads often offer more benefits, especially if you trade frequently during high market activity.

For traders who change their mind easily: Some brokers, like Mitrade, allow you to switch between fixed and variable spreads depending on your needs at different times.

How to reduce risk from spreads

Remember: The more spreads fluctuate, the harder it is to profit. So, key tips include:

Choose major currency pairs—EUR/USD, GBP/USD tend to have lower and more stable spreads due to high liquidity.
Select brokers with tight spreads—Compare different companies’ spread offerings clearly.
Avoid trading during major news releases unless you are experienced with volatility.
Plan your risk-reward ratio—Spreads are part of your costs and should be included in your calculations.

Understanding the spread is the foundation of careful trading

Ultimately, the spread is a financial difference between the price you pay (Ask) and the price you receive (Bid). It’s a service charge that brokers collect, but it also indicates market health. If you understand what the spread is and how it works, you’ll be better equipped to plan your trading strategies carefully and increase your chances of success.

Forex trading is not gambling; it’s an art and science of decision-making. Learning about the spread is the first art you need to master.

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