Financial Analyst/ Guest author, RADEX MARKETS
Lee W. is a seasoned professional trader with over 10 years of experience. Passionate about sharing valuable expertise and unique market insights, Lee W. now serves as an external and independent market analyst for RADEX MARKETS.
PODÍL
Have you ever opened a forex trade and immediately noticed that your account is already in the red?
Don't worry, it's not because the market has decided to personally target your account five seconds after you clicked "Buy." In most cases, that small loss comes from something every trader pays: the bid-ask spread.
One of the first things that confuses new traders is that every currency pair has two prices instead of one. When you look at EUR/USD, for example, you'll see a bid price and an ask price. The difference between these two prices is known as the spread, and it represents one of the most important trading costs you'll encounter.
Understanding bid and ask prices is essential because they affect every trade you place. Whether you're a long-term position trader holding trades for months or a scalper trying to grab a few pips at a time, the spread directly impacts your profitability.
In this guide, we'll explain exactly what bid and ask prices are, why they exist, how the spread is created, and how professional traders factor these costs into their trading decisions. By the end, you'll understand why you start slightly negative when entering a trade, and more importantly, how to use that knowledge to trade smarter.
In forex trading, the bid price is the price at which you can sell a currency pair, while the ask price is the price at which you can buy it. The difference between these two prices is known as the bid-ask spread.
Every forex quote contains both a bid and an ask price because buyers and sellers transact at different levels. Understanding this relationship helps traders calculate trading costs and better understand how orders are executed in the market.
Want to see real spreads on a live platform? Open a trading account and watch bid and ask prices move under real market conditions.
In forex trading, bid and ask prices refer to the two-sided quote a broker shows for every currency pair. Rather than displaying a single market price, forex quotes always contain two prices: one for selling and one for buying.
At any given moment, buyers and sellers have different expectations of value. The bid price represents what buyers are currently willing to pay, while the ask price represents what sellers are willing to accept. This two-way quote system allows the market to function efficiently by continuously matching buyers and sellers.
When you place a trade, you do not transact at a single "market price." Instead, your order is executed on either the bid side or the ask side, depending on whether you are buying or selling. This distinction is important because it directly affects your entry price and trading costs.
To understand how forex quotes work in practice, let's break down the bid price, ask price, and the spread that sits between them.
In forex trading, the bid price is the highest price a buyer is willing to pay for a currency pair at a given moment.
The bid price is typically quoted by banks, financial institutions, and liquidity providers that participate in the global forex market. These participants continuously compete to buy and sell currencies, creating the prices that traders see on their platforms.
When you place a sell order, your trade is executed at the current bid price. Put simply, if you want to sell EUR/USD, you are effectively accepting the highest available buying price being offered in the market.
For example, if EUR/USD is quoted at 1.1550 / 1.1552, the bid price is 1.1550. If you sell the pair, your order would be filled at 1.1550. This is why understanding the bid price is essential when calculating potential profits and losses.
In forex trading, the ask price, sometimes called the offer price, is the lowest price a seller is willing to accept for a currency pair.
Just as buyers compete to purchase currencies, sellers compete to offer them for sale. The ask price represents the best available selling price currently available in the market.
When you place a buy order, your trade is executed at the ask price. Because sellers generally want a slightly higher price than buyers are willing to pay, the ask price is usually higher than the bid price.
Using the same EUR/USD quote of 1.1550 / 1.1552, the ask price is 1.1552. If you click "Buy," your trade would be opened at 1.1552. This small difference between the bid and ask prices is what creates the spread.
In forex trading, the bid-ask spread is the difference between the ask price and the bid price.
This difference represents the cost of entering a trade and is one of the primary ways brokers, market makers, and liquidity providers are compensated for facilitating transactions. Although the spread is often small on major currency pairs, it affects every trade you place.
The spread also explains why new traders often see a small unrealised loss immediately after opening a position. The market has not necessarily moved against them; the trade simply needs to move far enough to offset the spread before showing a profit.
In short, the spread is the gap between the buying price and the selling price. The narrower the spread, the lower the immediate cost of entering the market.
Feature |
Bid Price |
Ask Price |
Bid-Ask Spread |
|---|---|---|---|
| Definition | Highest price a buyer will pay | Lowest price a seller will accept | Difference between ask and bid |
| Formula | Market buying price | Market selling price | Ask − Bid |
| You trade at it when | Selling | Buying | Cost of execution |
| Appears on every quote | Yes | Yes | Calculated from both |
| Impact on traders | Determines sell price | Determines buy price | Determines trading cost |
| Example (EUR/USD) | 1.1550 | 1.1552 | 2 pips |
The easiest way to remember this is:
Understanding these three concepts helps traders interpret quotes correctly and accurately calculate the true cost of entering and exiting positions.
Read more：What Is the Spread in Forex? Learn to Calculate and Trade It
Let's look at a practical forex quote:
EUR/USD: 1.1550 / 1.1552
In this quote:
If you decide to buy EUR/USD, your trade will be executed at the ask price of 1.1552.
If you decide to sell EUR/USD, your trade will be executed at the bid price of 1.1550.
This means that if you buy at 1.1552 and immediately close the trade, you will have to sell back at 1.1550, resulting in a 2-pip loss. That loss is not caused by the market moving against you; it is simply the cost of crossing the spread.
The reason this two-way pricing system exists is that banks, market makers, and liquidity providers continuously quote both buying and selling prices. By earning the difference between these prices, they are compensated for providing liquidity and ensuring traders can enter and exit positions at virtually any time.
For traders, this means every position begins by overcoming the spread. Before a trade can become profitable, the market must first move enough to cover this initial transaction cost.
In forex trading, the spread matters because it is a direct trading cost that is paid every time a position is opened.
While a spread of one or two pips may seem insignificant, those costs can accumulate quickly. For traders who open dozens of positions per day, such as scalpers and day traders, spread costs can have a substantial impact on overall profitability.
The spread also provides valuable information about current market conditions. Narrow spreads typically indicate strong liquidity and active participation from buyers and sellers. Wider spreads often suggest reduced liquidity, increased uncertainty, or heightened market risk.
For example, EUR/USD may trade with extremely tight spreads during the London-New York overlap when trading activity is at its highest. However, during quiet overnight sessions or major economic announcements, spreads may widen considerably.
As a result, understanding the spread helps traders judge the true cost of entering and exiting a position while also providing clues about overall market conditions.
In forex trading, the bid-ask spread is calculated by subtracting the bid price from the ask price.
There are two common ways to express the spread:
Bid-Ask Spread = Ask Price − Bid Price
Spread (%) = (Ask Price − Bid Price) ÷ Ask Price × 100
Forex traders typically measure spreads in pips rather than raw price differences because pips provide a standardised way to compare trading costs across different currency pairs.
Let's use our earlier EUR/USD example:
Calculation:
1.1552 − 1.1550 = 0.0002
Since one pip on most currency pairs equals 0.0001, the spread is 2 pips.
To calculate the percentage spread:
(0.0002 ÷ 1.1552) × 100 = 0.0173%
Although the percentage appears tiny, traders placing large positions or frequent trades can quickly accumulate significant costs over time.
Most forex pairs quote pips to the fourth decimal place. However, Japanese yen pairs are slightly different because a pip is typically measured at the second decimal place. For example, a movement from USD/JPY 145.50 to 145.52 equals 2 pips.
This is why professional traders usually think in terms of pips rather than percentages when evaluating trading costs.
Read more：What are pips in forex and how to calculate their value
Essentially, the spread exists because someone has to provide liquidity to the market.
Banks, financial institutions, market makers, and liquidity providers continuously quote both buying and selling prices so traders can enter and exit positions instantly. In return for taking on this responsibility and the associated risks, they earn compensation through the bid-ask spread.
While this sounds straightforward, financial research has shown that the spread reflects several underlying costs faced by liquidity providers. These costs help explain why spreads widen during volatile market conditions and narrow when markets are calm and liquid.
The three main components of the spread are:
These are the operational costs associated with receiving, matching, and executing transactions. Technology infrastructure, pricing systems, risk management systems, and trade processing all contribute to this cost.
Liquidity providers often temporarily hold positions while matching buyers and sellers. During this period, market prices may move against them, creating risk. Part of the spread compensates them for carrying this exposure.
Not every trader has the same information. Some market participants may possess superior information or react faster to breaking news. To protect themselves against potentially better-informed traders, liquidity providers incorporate additional protection into their pricing.
These components explain why spreads are not fixed. During periods of increased volatility or reduced liquidity, inventory risk and adverse-selection risk rise, causing liquidity providers to widen their quotes.
This is also why major news events such as Non-Farm Payrolls (NFP), central bank interest rate decisions, or unexpected geopolitical developments can cause spreads to expand dramatically for short periods.
The bid-ask spread is not fixed. It constantly changes in response to market conditions, liquidity levels, and perceived risk.
Some currency pairs regularly trade with extremely tight spreads, while others may experience substantial fluctuations throughout the day. Understanding the main drivers behind spread movements can help traders avoid unnecessary costs and improve execution quality.
The four most important factors are liquidity and trading volume, market volatility, the currency pair being traded, and the time of the day.
Liquidity refers to how easily buyers and sellers can transact without causing significant price changes.
When trading volume is high and large numbers of market participants are active, buyers and sellers can be matched quickly and efficiently. As a result, liquidity providers can offer tighter spreads because their execution risk is lower.
Conversely, when trading activity falls and fewer participants are available, matching orders becomes more difficult. This increases risk for liquidity providers, who often respond by widening spreads.
For example, EUR/USD typically enjoys some of the narrowest spreads in the forex market because it is the world's most heavily traded currency pair.
Market volatility is one of the biggest causes of spread expansion.
When prices begin moving rapidly, liquidity providers face greater uncertainty. A sudden market swing can leave them exposed to losses while they are holding inventory or processing orders. To compensate for this additional risk, they often widen their bid and ask quotes.
This is particularly noticeable during major economic announcements such as:
During these events, spreads that are normally very tight can temporarily widen by several times their usual size.
Read more：What is forex volatility? Definition, causes, strategies
The currency pair or market you trade plays a major role in determining the spread you will pay.
Major currency pairs such as EUR/USD, GBP/USD, and USD/JPY attract enormous trading volume every day. Because there are so many buyers and sellers, liquidity providers can offer very competitive spreads.
Minor currency pairs, sometimes called cross pairs, generally have lower trading volume and slightly wider spreads. Exotic pairs, which involve currencies from emerging economies, often have significantly wider spreads because liquidity is lower and price risk is higher.
The same principle applies across different asset classes. Forex majors typically have tighter spreads than commodities, indices, or cryptocurrencies because the underlying market structure and liquidity levels differ.
This is important because the cost of entering and exiting trades can vary substantially depending on what instrument you choose to trade.
The time of day can have a surprisingly large impact on the spread.
Forex is a 24-hour market, but liquidity is not evenly distributed throughout the trading day. When major financial centres are active simultaneously, trading volume increases and spreads often narrow.
The London-New York overlap is generally considered the most liquid period of the trading day. During these hours, banks, institutions, hedge funds, and retail traders are all actively participating in the market.
By contrast, spreads can widen during quieter periods, such as after the New York session closes or before the Asian session gains momentum.
For example, EUR/USD may trade with extremely tight spreads during the London-New York overlap but become noticeably wider during late evening trading hours when market participation declines.
For this reason, many experienced traders prefer to execute trades during peak market hours whenever possible as they are getting the best possible price.
Read more：Best time to trade forex: When to enter the market during the day
Bid and ask prices are continuously quoted by banks and liquidity providers. The spread itself is not usually charged as a separate fee. Instead, it is built directly into the price at which your trade is executed.
Every trader pays the spread in one way or another, but the exact impact depends on the type of order being used.
Market orders, limit orders, and stop orders all interact with the spread differently. Understanding these differences can help traders improve execution quality and better manage trading costs.
Read more：Types of Forex Orders: A Complete Beginner's Guide
A market order instructs your broker to execute the trade immediately at the best available price.
Because execution happens instantly, a market order crosses the spread immediately. If you buy, you pay the ask price. If you sell, you receive the bid price.
For example, if EUR/USD is quoted at 1.1550 / 1.1552 and you place a market buy order, your trade will be filled at 1.1552. The position will initially show a small unrealised loss equivalent to the spread.
During periods of low liquidity or high volatility, market orders may be executed with wider spreads than normal. This is one reason traders often see trading costs increase around major news releases.
The advantage of market orders is speed. The disadvantage is that you accept the prevailing spread regardless of market conditions.
A limit order allows traders to specify the exact price at which they are willing to buy or sell.
Unlike a market order, a limit order will only execute if the market reaches the chosen price level. This gives traders more control over entry prices and can sometimes reduce immediate trading costs.
For example, if EUR/USD is trading at 1.1550 / 1.1552 and you believe the price may pull back slightly, you might place a buy limit order at 1.1548. The order will only execute if the market falls to that level.
The obvious advantage is improved price control. The downside is that the market may never reach your chosen price, leaving you watching a profitable move from the sidelines while muttering things that probably shouldn't be repeated in polite company.
Many professional traders use limit orders to improve execution quality and avoid unnecessary spread costs whenever practical.
A stop order is designed to become active once the market reaches a specific trigger price.
After being triggered, a stop order usually converts into a market order and is executed at the best available price. Because of this, traders will generally pay the prevailing spread at the time of execution.
For example, imagine EUR/USD is trading at 1.1550 / 1.1552 and you place a buy stop order at 1.1570. If the market reaches that level, the order becomes active and executes at the best available ask price.
During fast-moving markets, particularly around major news announcements, stop orders may experience slippage and wider spreads than expected. This can result in execution at a less favourable price than originally anticipated.
For this reason, traders should always remember that stop orders provide convenience and automation, but they do not guarantee a fixed execution price.
Not all currency pairs have the same spread characteristics. Liquidity, trading volume, market participation, and risk all influence how wide or narrow spreads become.
Generally speaking, the more actively traded a currency pair is, the tighter the spread tends to be.
Currency Pair Type |
Common Examples |
Liquidity |
Typical Spread Characteristics |
|---|---|---|---|
| Major Pairs | EUR/USD, GBP/USD, USD/JPY, AUD/USD | High | Usually the narrowest spreads |
| Minor (Cross) Pairs | EUR/GBP, EUR/AUD, GBP/JPY | Medium | Slightly wider than majors |
| Exotic Pairs | USD/TRY, USD/ZAR, EUR/TRY | Low | Noticeably wider spreads and higher execution costs |
The practical impact for traders includes:
This is why many beginner traders start with major currency pairs before exploring lesser liquid markets. Lower trading costs make it easier to focus on developing trading skills rather than fighting excessive spreads.
Read more：What Is a Forex Currency Pair and How It Works in Forex
Every forex trade is executed somewhere between the bid and ask price. A market buy order is filled at the ask price, while a market sell order is filled at the bid price.
Because the spread represents a real trading cost, successful traders learn to factor it into their decision-making process rather than treating it as an afterthought. Fortunately, there are several simple ways to reduce the impact of spread costs and improve overall execution quality.
The following practical tips can help traders trade more efficiently and avoid paying unnecessarily high spreads.
One of the simplest habits a trader can develop is checking the spread before entering a position.
A reasonable spread depends on the instrument being traded. Highly liquid pairs such as EUR/USD typically trade with very tight spreads, while exotic pairs naturally have wider spreads because fewer market participants are involved.
For example, seeing a spread of 1 pip on EUR/USD during active market hours would generally be considered normal. However, seeing a spread of 10 or 15 pips on the same pair could indicate unusual market conditions, reduced liquidity, or an upcoming news event.
In short, if the spread suddenly looks much larger than usual, it may be worth asking why before clicking the buy or sell button.
Read more：What Is the Spread in Forex? Learn to Calculate and Trade It
Trading during peak market hours often provides the best combination of liquidity and tighter spreads.
The busiest period of the forex trading day is usually the London-New York overlap, when two of the world's largest financial centres are active simultaneously. During this period, trading volume is typically at its highest and execution conditions are often at their best.
For example, a trader entering EUR/USD during the London-New York overlap may experience significantly tighter spreads than someone trading the same pair late in the evening when market participation is lower.
This is one reason why many professional traders structure their trading schedules around the most active market sessions.
Every trade has a cost, and every time you enter a position, you pay the spread.
While one spread may seem insignificant, those costs accumulate rapidly when traders open and close excessive numbers of positions. Overtrading can turn a potentially profitable strategy into an unprofitable one simply because too much capital is being spent on execution costs.
Imagine a trader paying a 2-pip spread on dozens of trades every day. Over weeks and months, those costs can add up to hundreds or even thousands of pips.
As a result, focusing on quality trading opportunities rather than constant activity often leads to better long-term results.
Read more：What is overtrading and how to avoid it
Understanding bid and ask prices is important but seeing how spreads work on a live trading platform is where theory becomes reality.
At RADEX MARKETS, traders can choose between different account structures depending on their trading style, experience level, and preferred cost model. The way spread costs appear can vary depending on the account type selected.
Account Type |
Cost Model |
Spread |
Commission |
Best For |
|---|---|---|---|---|
| Standard Account | Spread-only pricing | From 1.1 pips | Zero commission | Beginners and traders who prefer simple pricing |
| RAW Account | Raw spread + commission | From 0.0 pips | $2.50 USD per side per standard lot ($5 round turn) | Advanced traders, scalpers, and high-frequency traders |
The Standard Account incorporates trading costs into the spread, allowing traders to focus on a single all-inclusive price structure.
The RAW Account provides access to spreads that closely reflect underlying market pricing, with costs separated into raw spreads plus a transparent commission. This model is often preferred by active traders who want greater visibility over execution costs.
The key takeaway is that the spread you see on your trading platform is not just a textbook concept, it's a real trading cost that directly affects every position you open.
To see how spreads are behaving right now, traders can check the live spread information available on the RADEX MARKETS website, where real-time pricing conditions are displayed across major currency pairs.
The bid-ask spread is the difference between the bid price and the ask price of a currency pair. It represents the cost of entering a trade and is usually narrower in highly liquid markets.
You buy at the ask price and sell at the bid price. This difference between the two prices creates the spread that traders pay when executing positions.
A good spread depends on the currency pair and market conditions. Major pairs such as EUR/USD often have very tight spreads, while exotic pairs typically have much wider spreads.
The spread is calculated using a simple formula: Spread = Ask Price − Bid Price. In forex trading, the result is usually expressed in pips rather than percentages.
Spreads typically widen during periods of low liquidity or high volatility. Major economic announcements, central bank decisions, and off-peak trading hours can all contribute to wider spreads.
Traders can reduce spread costs by focusing on highly liquid currency pairs, trading during peak market hours, avoiding unnecessary trades, and choosing an account structure that matches their trading style.
Bid and ask prices are the foundation of every forex transaction. The bid price is the price at which you can sell, the ask price is the price at which you can buy, and the difference between them is known as the spread.
While the spread may appear small, it represents a real trading cost that affects every position you open. Factors such as liquidity, volatility, currency pair selection, and trading session all influence how wide or narrow that spread becomes.
Once traders understand how bid and ask prices work, they can make more informed decisions about when to trade, what to trade, and how to manage execution costs more effectively.
If you'd like to see bid and ask prices in action, open a RADEX MARKETS demo account and watch live spreads move under real market conditions before risking real capital.
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