What is the Spread? How to calculate Spreads in Forex Trading

What is the Spread？ 

It is defined as the difference between the bid and ask price of a currency pair. That is usually measured in pips, the smallest unit of price movement. The larger the gap, the higher the spread. It can be very small in a high liquidity market, but when the market is less liquid, spreads will be wider.

The bid price is the price that the trader is willing to pay for the traded asset. The ask price is the price that the trader is willing to receive from selling the traded asset. 

When trading currencies, a quote for a EUR/USD currency pair can be displayed as $1.1524/27. The first figure represents the bid price of $1.1524, while the second figure represents the ask price of $1.1527, and the difference between the two is the spread worth of 3 pips. 

How to Calculate Spread in Forex Trading 

It is typically calculated by subtracting the bid price from the ask price within the price quote. It is measured in pips, the last decimal point on the price quotation of a currency pair. In the Japanese yen pairs, it is the second decimal point. 

Check out our article about Spread on AximDaily to learn about different types of spread and become a better trader.