What is Spread in CFD Trading?

In CFD and Forex trading, a spread is the difference between the ask price (price you buy at) and the bid price (price you sell at). The broker quotes two prices simultaneously:

• Bid — The price at which you can sell the instrument
• Ask — The price at which you can buy the instrument
• Spread = Ask − Bid

For example, if EUR/USD is quoted as 1.08003 / 1.08007, the spread is 0.4 pips (0.00004). Your trade starts in a small loss equal to the spread — the market must move in your favour by at least the spread amount before you break even.

Formula: Spread Cost = Spread (in pips) × Pip Value × Lot Size

Example 1: EUR/USD standard lot

• Spread: 1.0 pip
• Pip value on EUR/USD standard lot: $10
• Cost: 1.0 × $10 = $10 per trade

Example 2: Gold (XAU/USD)

• Spread: $0.30 per ounce
• 1 lot = 100 ounces
• Cost: $0.30 × 100 = $30 per trade

For a trader making 20 EUR/USD trades per week:

• At 0.2 pip spread: 20 × $2 = $40/week in spread costs
• At 1.5 pip spread: 20 × $15 = $300/week in spread costs

The difference of 1.3 pips compounds to $260/week — $13,520/year — making spread comparison critically important for active traders.

Fixed Spreads

• Do not change regardless of market conditions
• Predictable costs for traders
• Typically wider than variable spreads during normal market conditions
• Usually offered by market maker brokers

Variable (Floating) Spreads

• Widen during news events, low liquidity, and market open/close
• Tightest during peak liquidity (London-New York overlap)
• Best for traders who trade during optimal market hours
• Standard on ECN/STP broker accounts

For most active traders, variable spreads are lower on average than fixed spreads. Fixed spreads are preferred during highly volatile news events when variable spreads spike.