Forex Spreads Explained: Bid, Ask and Trading Cost Examples

You open a forex position, the exchange rate barely moves, and the platform already shows a small loss. Before assuming something went wrong, look at the two prices on the order ticket.

One is available for buying. The other is available for selling. The distance between them—the spread—explains why opening a position and immediately reversing it usually leaves you with less money.

Forex spreads are part of the price you trade at. Understanding their effect requires more than finding the smallest number on a pricing page: position size, commission and the conditions at closing also matter.

Bid and Ask: Which Price Applies to Your Order?

Imagine the following NZD/USD quotation:

A buy position opens at the ask and closes by selling at the bid. A sell position opens at the bid and closes by buying at the ask. The quoted spread is calculated as ask minus bid.

For this quotation:

0.61246 − 0.61234 = 0.00012

Using the conventional NZD/USD pip size of 0.0001:

0.00012 ÷ 0.0001 = 1.2 pips

Suppose you buy and then immediately sell while both prices remain unchanged. You pay 0.61246 and receive 0.61234. That difference creates a loss even though the quotation itself never moved.

The spread may not appear as a separate debit in the transaction history. Its effect is already present in the execution prices.

Fixed and Floating Spreads Describe Different Pricing Arrangements

With a fixed spread, the provider specifies a bid–ask distance under the conditions described in its product terms. For example, a hypothetical fixed spread of 1.5 pips means the two quoted prices are kept 1.5 pips apart while that pricing arrangement applies.

The prices can still rise or fall. “Fixed” describes their separation, not the exchange rate.

Read the conditions attached to the offer, including any exceptions, trading-hour restrictions and execution rules. A fixed spread alone does not guarantee that every order will execute at the price visible when it was submitted.

A floating, or variable, spread changes as quotations update. You might observe 0.7 pips, then 0.9, then 1.3 during the same session.

Broker spreads therefore need to be read with their labels:

An average is useful only with context. Check which instrument, account type and observation window it covers. OANDA’s historical spread tool, for example, distinguishes minimum, average and maximum observations over time.

Why Spreads Widen—and What Happens to an Open Position

The prices available to trade depend partly on liquidity: how much buying and selling interest is available, and at which prices.

Around major announcements or during thin trading conditions, the distance between bid and ask can increase. Market openings and closings are also periods when spreads may become wider. These changes are documented in broker pricing disclosures.

Widening can affect an existing position even when the centre of the quotation stays still.

Consider two hypothetical snapshots:

The midpoint is unchanged. However, the bid has fallen and the ask has risen.

Someone holding a buy position now faces a lower quoted selling price. Someone holding a sell position faces a higher quoted buying price. Their displayed profit or loss can deteriorate without a corresponding change in the midpoint.

This also explains why a chart showing only one price stream may not tell the whole story. Check which price the chart displays and which price the provider uses to trigger an order.

Spread widening and slippage are separate effects. Widening changes the gap between quoted prices. Slippage describes execution at a price different from the relevant reference or expected execution price.

Translating Trading Spreads into a Cash Amount

A spread of 1.2 pips has a different monetary effect on 3,000 units and 30,000 units.

For a conventional forex position measured in base-currency units, the cash equivalent of the current quoted spread is:

Position units × (Ask − Bid)

The result is in the pair’s quote currency.

Using our NZD/USD quotation and a position representing 30,000 NZD:

30,000 × (0.61246 − 0.61234) = USD 3.60

Alternatively, calculate the position’s pip value first:

30,000 × 0.0001 = USD 3 per pip

Then:

1.2 pips × USD 3 = USD 3.60

This is the loss from buying and immediately selling at unchanged quotations, before separate charges.

It should not automatically be doubled because the trade has an opening and a closing transaction. The immediate reversal already uses both prices and loses one full spread.

When the Market Moves Before Closing

Assume the same 30,000 NZD buy position opens at 0.61246. Later, the quotation becomes:

Bid: 0.61278 / Ask: 0.61290

Closing the buy position means selling at 0.61278:

30,000 × (0.61278 − 0.61246) = USD 9.60

That is the gross result from the actual execution prices. Do not subtract another spread allowance from it: the bid–ask pricing has already affected the calculation.

A forecast based on one quoted spread is a planning estimate. Once the trade is complete, use its actual fills to calculate the price result.

Forex Commission: Read the Charging Unit

Some accounts include the dealing charge within the spread. Others combine a narrower spread with a separately charged forex commission. Both pricing structures appear in broker account documentation.

For a hypothetical commission schedule, assume:

• USD 3 per 100,000 base-currency units.
• The charge applies separately to opening and closing.
• Smaller positions are charged proportionally.
• There is no minimum commission.

For 30,000 units, the opening commission is:

USD 3 × 30,000 ÷ 100,000 = USD 0.90

Closing the same quantity adds another USD 0.90:

Total commission = USD 1.80

“Per side” describes one transaction. “Round turn” or “round trip” normally refers to opening and closing together. Confirm the provider’s definition before doubling a published rate.

Also check whether commission is calculated per lot, per currency unit or per monetary amount traded. Those charging bases cannot always be substituted for one another.

Comparing the Full Cost on the Same Basis

To compare pricing structures, give both calculations the same assumptions.

The following illustration uses NZD/USD, a USD account and a 30,000 NZD position. It assumes unchanged quotations between opening and closing, exact execution at bid and ask, and no financing or other charges.

These are invented pricing models, not broker offers.

Model B costs USD 0.60 less under these particular assumptions. That result can change if its spread widens, minimum commissions apply or the position is held long enough to incur other charges.

For broader forex trading fees, extend the calculation to include:

• Financing: holding a position past the relevant cutoff can generate a debit or credit. The treatment depends on the instrument, direction and provider’s schedule.
• Currency conversion: profit, loss or fees may need conversion into the account currency, potentially with an additional adjustment.
• Execution differences: actual fills may differ from the quotations used in the estimate.
• Account charges: applicable inactivity, payment or service fees belong in an account-level budget, even when they cannot be assigned neatly to one trade.

For a completed position, begin with the profit or loss calculated from actual fills, then reconcile separately posted commissions, financing and other adjustments. Check what the platform has already included before making deductions.

For a prospective trade, compare the same quantity, currency pair and holding period using realistic spread observations. A headline spread becomes meaningful only when you can explain what the complete transaction would cost under those assumptions.

Frequently Asked Questions

1. What are forex spreads?

A forex spread is the difference between the ask price, at which you can buy a currency pair, and the bid price, at which you can sell it. If NZD/USD is quoted at 0.61234 bid and 0.61246 ask, the spread is 0.00012, or 1.2 pips.

2. What is the difference between fixed and floating spreads?

A fixed spread specifies the distance between bid and ask under the provider’s stated conditions. A floating spread changes as quotations update. Neither arrangement fixes the exchange rate, and a fixed spread does not by itself guarantee execution at the price displayed when you submit an order.

3. Why can a position lose value when the chart barely moves?

Your position’s closing price may move even when the midpoint stays unchanged. A wider spread can push the bid lower, reducing a buy position’s value, or push the ask higher, increasing the cost of closing a sell. Check which price your chart displays. Spreads can widen around market closures and other periods of reduced liquidity.

4. How do you calculate a forex spread in money?

Multiply the position’s base-currency units by the difference between ask and bid. The answer is in the quote currency. For a hypothetical 30,000 NZD position with a NZD/USD spread of 0.00012, the calculation is 30,000 × 0.00012 = USD 3.60, before separate charges or account-currency conversion.

5. Do you pay the spread twice when opening and closing a trade?

Do not automatically double it. Buying at the ask and immediately selling at the bid, with quotations unchanged, produces a loss equal to one full spread. For a completed trade, calculate the price result from its actual opening and closing fills; subtracting another spread allowance would count that effect again.

6. What is the difference between a spread and a forex commission?

The spread is embedded in the buying and selling prices. A commission is a separately specified charge, and some accounts apply both. Read whether the commission is quoted per side or for a round trip, and check its charging unit. Broker schedules can differ by account and platform.

7. Are spread widening and slippage the same thing?

No. Spread widening increases the distance between the quoted bid and ask. Slippage occurs when an order executes at a different price from the relevant expected or reference price. Both can affect the same transaction, so an estimate based on the displayed spread may differ from the final result.

8. Does a zero spread mean trading is free?

A zero quoted spread does not rule out commissions, overnight financing, conversion charges or other applicable fees. It may also be a temporary minimum rather than the spread available throughout your trade. Compare costs using the same currency pair, position size and holding period, then check actual execution and separately posted charges.