The spread in forex is a small cost built into the buy (bid) and sell (ask) price of every currency pair trade. When you look at the price that’s quoted for a currency pair, you will see there is a difference between the buy and sell prices – this is the spread or the bid/ask spread.
Changes in the spread are measured by small price movements called pips – which is any change in the fourth decimal place of a currency pair (or second decimal place when trading pairs quoted in JPY). It is not only the spread that will determine the total cost of your trade, but also the lot size.
With us, you can trade forex using derivatives like spread bets and CFDs, 24 hours a day. Derivative products enable you to take a position on forex without taking ownership of the underlying asset. You can go long or short, which means you can speculate on rising as well as falling currency prices. And, you only need a small deposit – called margin – to open your position.
The margin on a forex trade is usually only 3.33% of the value of the trade, which means you can make your capital go further while still getting exposure to the full value of the trade. Note, while margin can magnify your profits, it will also amplify any losses.
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How to calculate the spread in forex
To calculate the spread in forex, you have to work out the difference between the buy and the sell price in pips. You do this by subtracting the bid price from the ask price with forex pip calculator profit. For example, if you’re trading GBP/USD at 1.3089/1.3091, the spread is calculated as 1.3091 – 1.3089, which is 0.0002 (2 pips).
Spreads can either be wide (high) or tight (low) – the more pips derived from the above calculation, the wider the spread. Traders often favour tighter spreads, because it means the trade is more affordable.
If a market is very volatile, and not very liquid, spreads will likely be wide, and vice versa. For example, major currency pairs such as EUR/USD will have a tighter spread than an emerging market currency pair such as USD/ZAR. However, spreads can change, depending on the factors explained next.
Why does the spread change in forex?
The spread in forex changes when the difference between the buy and sell price of a currency pair changes. This is called a variable spread – the opposite of a fixed spread. When trading forex, you will always deal with a variable spread.
The forex spread may increase if there is an important news announcement or an event that causes higher market volatility. One of the downsides of a variable spread is that, if the spread widens dramatically, your positions could be closed or you’ll be put on margin call. Keep an eye on our economic calendar to stay abreast of upcoming financial events.
Forex trading platforms
There are a range of forex trading platforms to choose from, including our award-winning platform, MT4 or an MT4 VPS. Each of these platforms will show the forex spreads up front.
Our trading platform
Our trading platform has been voted the best in the UK,i and you can use it to trade over 80 currency pairs including majors like EUR/USD and GBP/USD, and minors like CAD/JPY and EUR/ZAR. Our minimum forex spreads start at 0.6 for EUR/USD and AUD/USD.
You’ll also get in-platform news and analysis from our expert team and Reuters, as well as technical indicators like moving averages and relative strength index (RSI) to help you conduct technical analysis.