Spreads

A spread is one potential cost of doing business that you should consider when trading the financial markets. The difference between the buy and sell price on a broker’s platform is the spread. This means that once you execute a trade, the market will need to move in a favorable direction beyond the spread cost in order for your trade to become profitable overall. Also, if the market remains within the spread, even if it still moves in your direction, the trade will be a losing trade.

The tighter the spread, the less the market has to move in a favorable direction for your trade to reach profitability. You should also note that some markets or brokers do not use a spread but instead charge a commission. Others use a mixture of commission and spread. Some brokers will charge you a transaction fee to execute trades.

A spread is usually expressed as the last large digit inside a value quote. For example, in the Forex market, the GBP/USD pair may have a sell price of 1.65364 and a buy price of 1.65373. The difference between the two approaches 0.00009. However, since the spread is expressed as the last large digit in the quote, the spread would be expressed as 0.9.