Every instrument is quoted with two prices. The bid is what you can sell at; the ask is what you can buy at. The ask is always the higher of the two, and the gap between them is the spread. Open a position and you start marginally behind by exactly that amount — which is why the spread is a cost even though nothing is itemised as a fee.
Why it is not a fixed number
A spread is a reflection of how much liquidity is available at the moment you ask. When many participants are quoting, the best bid and the best ask sit close together. When they step back, the gap widens. Nothing has been decided about you specifically; the market has simply become thinner.
That produces a daily rhythm you can plan around:
London and New York overlap
The deepest liquidity of the day and typically the tightest spreads on major pairs.
Around the Asian open
Thinner books as one session hands over to the next; spreads widen noticeably on crosses.
At the daily rollover
A brief widening as liquidity providers reset their books.
On scheduled releases
The sharpest widening of all, often for only a few seconds — but a few seconds is enough.
The mistake worth avoiding
Traders compare brokers on advertised minimum spreads and then trade at times when nobody is quoting that minimum. A 0.0-pip spread that exists during the London overlap tells you very little about the cost of a position opened ninety seconds before a rate decision. Judge a spread by what it is when you trade, not by the number in the marketing.
What to do about it
- Watch the spread on your own instruments for a weekNote it at the hours you actually trade. That number is your real cost, not the advertised one.
- Size for the release, not the calmIf you hold through an announcement, assume the spread you will exit at is several times wider than the one you entered at.
- Compare total cost, not spread aloneOn a raw account the commission is part of the cost. Add it before concluding one model is cheaper.