A spread is the difference between the bid price (the price at which you can sell) and the ask price (the price at which you can buy) of a trading instrument. It represents one of the main costs of trading, as you start your trade slightly “in the red” by the size of the spread.
- Tighter spreads mean lower trading costs and are common in highly liquid markets like major Forex pairs.
- Wider spreads can occur during low liquidity periods, volatile markets, or for less-traded instruments.
Understanding spreads is essential for planning entry and exit points, managing costs, and optimising trading strategies.
