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RockstarMarkets
All glossary
Markets

FX spread

The bid-ask spread on an FX pair, expressed in pips — the broker's primary revenue and your primary friction cost.

What it means

The FX spread is the difference between the bid (price you sell at) and ask (price you buy at) on a currency pair. Quoted in pips. A 0.6 pip spread on EUR/USD means you buy at 1.08251 and sell at 1.08245. Spreads are dynamic — tightest during overlapping major sessions (London + NY, 13:00-17:00 UTC), widest during quiet hours and around scheduled events like FOMC.

Why it matters

Spread is the largest hidden cost in FX trading. A trader making 100 round-trip trades per month on EUR/USD with a 1-pip spread vs 0.5-pip spread pays 0.5 pip × 100 trades × $10/pip = $500/month extra per standard lot. Across a year and a 10-lot strategy, that is $60,000 of pure cost — often more than the trader's annual return.

How to use it

Compare brokers on time-weighted spreads, not advertised minimums. Use the broker's tick-data history (or login during trading hours) to check spread during the windows you actually trade. Avoid trading 1-2 minutes before/after major news releases where spreads can balloon from 0.6 to 8+ pips on EUR/USD.

Example

An ECN broker quotes EUR/USD spread of 0.2 pips + $7 round-trip commission per standard lot. A market-maker broker quotes EUR/USD spread of 1.2 pips, no commission. Total cost: ECN = 0.2 pip + 0.7 pip (commission in pip terms) = 0.9 pip per round trip. Market maker = 1.2 pip. ECN is ~25% cheaper per round trip.

Deep dive

Spread structure by broker type

Three broker categories. (1) ECN/STP brokers (Interactive Brokers, IC Markets, Pepperstone): pass through interbank spreads (often 0.0-0.3 pip on EUR/USD) plus a fixed commission ($5-10 round trip per standard lot). Lowest total cost for active traders. (2) Market makers (FXCM legacy, Forex.com, IG): wider spreads (0.8-1.5 pip on EUR/USD), no commission. Total cost similar to ECN at low frequency. (3) Hybrid (OANDA, Saxo): blended model. For trading >20 round trips/month per standard lot, ECN typically wins on cost.

Spread variability by time of day

EUR/USD spread on an ECN broker through a typical 24-hour day: Asia session (00:00-08:00 UTC) ~0.5-1.0 pip, London open (08:00 UTC) sharp tightening to 0.2-0.4 pip, London-NY overlap (13:00-17:00 UTC) tightest 0.0-0.3 pip, US close (21:00 UTC) widens to 0.5-1.0 pip, post-NY (22:00-00:00) 1.0-2.0 pip. Friday close to Sunday open: widest of the week. Trading the same strategy during overlap vs Asia can cut costs by 60-70%.

  • London-NY overlap (13:00-17:00 UTC): tightest spreads globally
  • Tokyo session (00:00-06:00 UTC): wider for non-JPY pairs
  • Friday 21:00 UTC to Sunday 21:00 UTC: market closed, no spread quoted
  • Holiday windows (Christmas, NYE): spreads can widen 5-10x during partial-staff trading

Event-driven spread blow-outs

Around scheduled high-impact releases (NFP, CPI, FOMC), liquidity providers pull back. EUR/USD spread can balloon from 0.6 pip to 5-8 pips in the 30 seconds surrounding the release. Stop-loss orders that would normally fill at the price level may execute 3-4 pips worse due to slippage on the widened book. Many brokers explicitly disable new positions during the 1-2 minutes around major releases.

Hidden spread costs — swap, conversion, and weekend

Beyond the bid-ask, three hidden costs to account for. (1) Swap (overnight financing): the broker's bid-ask on swap rates is typically 0.5-1% wider than interbank, eating carry returns. (2) Currency conversion: if your account is USD but you trade EUR/JPY, the broker converts P/L at non-interbank rates. (3) Weekend triple swap: most brokers charge 3x swap on Wednesday close to capture weekend financing — this can be a real cost on carry positions.

Spread arbitrage and ECN routing

Some platforms (cTrader, MT4 with ECN feed) show the entire order book depth. Skilled traders can pick the level at which liquidity is best (often the second-best bid rather than the inside), saving a tick on entry. For most retail traders this is over-engineering, but for scalpers running 100+ trades/day, the slippage savings compound to material annual returns.

How to evaluate a broker on spread honestly

Three steps. (1) Open a demo account with the broker and screenshot the spread display at 9:30 ET, 13:30 ET, and 22:00 ET across 5 trading days. (2) Compare to a reference ECN (Interactive Brokers gives strong baseline). (3) Calculate total cost (spread + commission + swap) for your typical monthly volume. A broker advertising '0.0 pip minimum spread' on EUR/USD is meaningless if the time-weighted average is 1.2 pips.

Frequently asked

What is a good EUR/USD spread?

On a good ECN broker during London-NY overlap, expect 0.0-0.3 pip spread plus commission. Total round-trip cost for a standard lot: 0.7-1.0 pip equivalent. Market makers typically run 1.0-1.5 pip with no commission. Anything wider than 1.5 pip on EUR/USD during peak hours is uncompetitive.

Why does my broker show different spreads at different times?

Spreads reflect liquidity. During Asia session for EUR/USD, fewer market makers are active, so spreads widen. During London-NY overlap, all major desks are open and spreads tighten. Around news releases, liquidity providers pull back temporarily.

What is a 'no spread' or 'zero spread' account?

Marketing language for ECN accounts where you pay commission instead of spread. The total cost is similar — you're not actually getting free trading. Commission-based accounts win at high trade frequency; spread-based accounts win at low frequency.

Are wider spreads in some pairs normal?

Yes. EM and exotic pairs (USD/TRY, USD/ZAR, USD/MXN) carry wider spreads (10-50 pips equivalent) because liquidity is thinner. JPY crosses (EUR/JPY, GBP/JPY) are wider than EUR/USD or GBP/USD. AUD/USD and NZD/USD are wider during Tokyo session.

How do brokers make money on commission-free trading?

By marking up the spread. They get a tight interbank quote, add 0.5-1 pip markup, and offer it to you as 'no commission'. The markup IS the revenue. Always compare total cost (spread + commission together), not the marketing label.

What is slippage and how does it relate to spread?

Slippage is the difference between the price you expected and the price you got — usually worse. Happens on stop orders during fast moves and around news. Slippage cost is separate from spread but compounds with it: a 2-pip spread plus 3-pip slippage on a stop-loss execution means you got 5 pips worse than the visible mid-market price.

Take it further

Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.

Ask Rocky