The spread is the gap between the price at which you can buy (ask) and the price at which you can sell (bid) an asset. It's the main revenue source for "commission-free" Forex brokers — in reality, they earn on the spread.
If EUR/USD is quoted 1.0850/1.0851, the spread is 1 pip (0.0001). Concretely: you buy at 1.0851 and immediately sell at 1.0850, losing 1 pip on entry. On 1 standard lot, that's $10 lost instantly.
Spreads vary based on:
- The pair: EUR/USD typically has the tightest spreads (0.1 to 1 pip); exotic pairs (USD/TRY, USD/MXN) can reach 50+ pips.
- Time of day: spreads tighten during London and New York sessions (high liquidity), widen during Asian night and around economic announcements.
- Broker type: ECN brokers show variable spreads (from 0.0 pip + fixed commission); market-makers show wider spreads but no commission.
For a scalper, a 1-pip spread already eats a significant chunk of the target gain — hence the importance of choosing a tight-spread broker.