The spread is the difference between the bid price (the price the market will buy from you) and the ask price (the price the market will sell to you). When you see EUR/USD quoted at 1.0850/1.0852, the spread is 2 pips. You buy at 1.0852 and sell at 1.0850 — the broker captures the difference.
How Spreads Affect Your Trades
Every trade you open starts at a loss equal to the spread. If the spread on EUR/USD is 1.5 pips and you trade a standard lot (pip value = $10), you're immediately down $15 on the trade. EUR/USD must move at least 1.5 pips in your favor before you break even.
On short-term trades where you're targeting 5–10 pips, a 1.5-pip spread is 15–30% of your target. This is why scalpers are obsessed with spread — for longer-term trades targeting 30–50 pips, 1.5 pips is less than 5% of the target and matters less.
Fixed vs Variable Spreads
Fixed spreads stay constant regardless of market conditions. They're typically wider than the average variable spread but don't widen during news events. More predictable for cost planning.
Variable spreads narrow during calm, liquid market conditions and widen significantly during news releases, market opens, and periods of low liquidity. EUR/USD might be 0.1 pips at the London–New York overlap and 5+ pips during the Asian session or during major economic releases.
Spreads and Market Sessions
Spreads are tightest during peak liquidity hours — the London–New York overlap (13:00–17:00 GMT). They're widest during the Sunday open, holidays, and the Asian session for pairs not involving JPY or AUD. For scalping and short-term trading, timing entries during high-liquidity windows meaningfully reduces transaction costs.