Spread
Also called: bid-ask spread, dealer spread
The difference between the bid (sell) and ask (buy) price — your unavoidable cost on every round-turn trade.
Definition
The spread is the broker’s compensation for providing liquidity. Tighter spreads = lower trading costs. Spreads can be fixed (broker-defined) or variable (driven by underlying market liquidity); they typically widen during news, weekend opens, and low-liquidity sessions.
For a round-turn trade (entry + exit), you pay the spread twice (once at each side) — or, equivalently, you start every trade in the red by the spread amount.
Example
EUR/USD bid 1.08000, ask 1.08008. Spread = 0.8 pips. On a 1.0-lot trade, the spread cost = 0.8 × $10 = $8.
Formula
Spread = Ask − Bid Spread cost ($) = Spread (pips) × Pip value × Lots
Why it matters
Backtests usually run on bid-only data. Always factor in spread when comparing strategy results to live execution.
FAQs
What's a typical EUR/USD spread?
On ECN brokers, 0.0–0.3 pips raw + commission. On standard accounts, 0.6–1.5 pips all-in.
Fixed vs variable spread — which is better?
Variable is usually cheaper in normal conditions; fixed protects you during news spikes. Most professionals prefer variable + commission (ECN model).