When trading forex on FXTRADING.com, one of the key costs to consider is the spread. This guide explains what spreads are, how to measure them, and how they affect your trading.
What is a Currency Spread?
A spread is the difference between the bid price (selling price) and the ask price (buying price) of a currency pair. It is measured in pips and represents one of the main transaction costs in forex trading.
Spread Formula:
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Spread = Ask Price - Bid Price
Key Terms to Understand
Bid Price: The price at which you can sell the base currency
Ask Price: The price at which you can buy the base currency
Base Currency: The first currency in a pair (shown on the left)
Quote/Counter Currency: The second currency in a pair (shown on the right)
For example, in the EUR/USD pair:
EUR is the base currency
USD is the quote/counter currency
If the bid price is 1.0850 and the ask price is 1.0852, the spread is 0.0002 or 2 pips
How to View Spreads in MetaTrader
To visibly see the spread on your chart in MetaTrader:
Right-click on the background of your chart
Select "Properties" at the bottom of the menu
Go to the "Show" tab at the top of the window
Check the box for "Show ask price line"
Click "OK" to apply the changes
The spread will be visible as the difference between the ask line (typically dotted) and the bid line (solid) on your chart. This is most noticeable on smaller timeframes like M1 (1-minute) or M5 (5-minute) charts.
Factors Affecting Spread Size
Several factors can influence the size of spreads:
Market Volatility: Higher volatility usually means wider spreads
Liquidity: Major pairs like EUR/USD typically have tighter spreads than exotic pairs
Time of Day: Spreads tend to be tighter during major market sessions and wider during off-hours
Economic Events: News releases and economic announcements can temporarily widen spreads
How Spreads Impact Your Trading
Understanding spreads is crucial because:
The spread is effectively a cost you pay to enter a position
Wider spreads mean you need a larger price movement to break even
Frequent trading strategies are more affected by spread costs than long-term strategies
Calculating potential profit should always account for the spread
Calculating the Cost of a Spread
To calculate the monetary cost of a spread:
Determine the spread in pips
Multiply by the pip value for your position size
Convert to your account currency if necessary
Example: For a 2 pip spread on EUR/USD with a standard lot (100,000 units), the cost would be 2 pips × $10 per pip = $20.
For more information about currency spreads or to discuss your trading costs, please contact our Live Chat support team through your Client Portal.