Open any trading platform and you'll notice that every instrument shows two prices, not one. This confuses many beginners, but it's simple once explained: one price is for buying, and one is for selling, and they're never exactly the same.
Bid and Ask Defined
- ▸Bid: the highest price a buyer is currently willing to pay for the asset. If you sell right now, you sell at the bid.
- ▸Ask (also called offer): the lowest price a seller is currently willing to accept. If you buy right now, you buy at the ask.
The ask is always higher than the bid. That gap is the spread, and it exists in every liquid market — stocks, forex, commodities, crypto.
Why the Spread Exists
The spread compensates market makers and liquidity providers for the risk of always being ready to buy or sell. It's effectively a small fee built into the price rather than charged separately. Brokers may also add a markup to the raw market spread as part of their revenue model.
The Spread as an Immediate Cost
The moment you open a trade, you're already at a small loss equal to the spread, because you bought at the ask but the position is valued at the bid (or vice versa for a short). Price needs to move in your favor by at least the spread amount before you're breakeven.
Spreads widen significantly around major news releases and during low-liquidity hours, like the Asian session for EUR/USD. A spread that's normally 1 pip can jump to 5-10 pips in seconds.
Fixed vs. Variable Spreads
| Fixed spread | Variable spread | |
|---|---|---|
| Behavior | Stays constant regardless of market conditions | Widens or tightens with market liquidity |
| Predictability | Easier to plan costs in advance | Costs vary, harder to predict exactly |
| Typical use | Common with some market makers | Common with ECN/STP brokers |
Why It Matters for Your Strategy
Spread costs add up fast for high-frequency strategies like scalping, where you might make dozens of trades a day. A strategy that looks profitable on paper can become unprofitable once realistic spreads are factored in. Always check typical spread size for the instruments you trade before committing to a strategy.