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    What are spreads and how do I calculate them?

    A spread is the difference between the ask price (buy price) and the bid price (sell price) of a trading instrument.

    The spread represents one of the primary costs of trading. When you open a position, the trade initially reflects the spread as a trading cost before any profit or loss from market movement is realised.

     

    How Do I Calculate a Spread?

    The basic formula is:

    Spread = Ask Price − Bid Price
    Example: Forex

    If EURUSD is quoted as:

    • Bid: 1.1000
    • Ask: 1.1002

    The spread is:

    1.1002 − 1.1000 = 0.0002

    This equals 2 pips.
     

    Example: Indices

    If an index is quoted as:

    • Bid: 17,500
    • Ask: 17,502

    The spread is:

    17,502 − 17,500 = 2 points

    Depending on the instrument, spreads may be shown in pips, points, or the instrument's quoted price increment.

     

    Why Are Spreads Important?

    Spreads directly affect your trading costs.

    For example, if you open a buy position on EURUSD with a 2-pip spread:

    • You enter the trade at the ask price.
    • The market must move by at least 2 pips in your favour before the position reaches break-even (excluding any commissions or other applicable charges).

    Understanding spreads can help you:

    • Evaluate trading costs.
    • Plan entry and exit points.
    • Manage risk more effectively.

    • Compare different account types and instruments.

       

    Why Do Spreads Change?

    Spreads are not always fixed and may widen or narrow depending on market conditions.

    Common factors that can affect spreads include:

    • Market liquidity.
    • Trading session activity.
    • Economic announcements and major news events.
    • Market volatility.
    • The instrument being traded.

    Generally:

    • Tighter spreads are more common during highly liquid market conditions, such as when major Forex markets are active.

    • Wider spreads may occur during periods of low liquidity, heightened volatility, market opens, market closes, or significant economic events.

       

    Do All Instruments Have the Same Spread?

    No. Spreads vary by instrument.

    For example:

    • Major Forex pairs often have lower spreads due to higher trading volume and liquidity.
    • Exotic currency pairs may have wider spreads.

    • Commodities, indices, shares, and other CFDs may quote spreads differently depending on the market and instrument specifications.

       

    Important Note

    • A spread is the difference between the bid price and the ask price of an instrument.
    • Spreads represent a trading cost and are reflected when a position is opened.
    • Spreads may be quoted in pips, points, or other price increments depending on the instrument.
    • Spreads are variable and may widen or narrow based on market conditions and available liquidity.

    • Trading costs may also include commissions or other applicable charges depending on your account type and the instrument traded.

       

    Need More Help?

    If you have questions about spreads, trading costs, or the pricing of a specific instrument, please contact our Customer Support team at support@monetamarkets.com and include:

    • Your trading account number
    • The instrument you are enquiring about
    • The platform you are using (MT4, MT5, AppTrader, or WebTrader)

    Providing these details will help us assist you more efficiently.

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