Understanding Spread in Trading: Definition, Types & Broker Selection
When you enter the markets, you’ll notice the buy price (ask) and sell price (bid) for an asset are never identical. That difference is called the spread in trading, and it’s one of the core costs you incur every time you open a position. Mastering how spread works helps you optimize your CFD trading strategy and choose the right broker.
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What Is Spread in Trading?
Spread in trading is simply the gap between the ask (offer) price and the bid (sell) price of an asset.
- Ask price: the price at which you can buy.
- Bid price: the price at which you can sell.
Spread = Ask Price − Bid Price
This gap represents the broker’s fee for providing market access. In CFD trading, spreads replace explicit commissions, so understanding both fixed and floating spreads is vital for cost management.
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Fixed vs. Floating Spreads
Choosing between fixed and floating spreads affects your trading costs and risk exposure.
- Fixed spreads
- Remain constant regardless of market conditions
- Offer predictability for position-sizing and risk management
- May be wider on average
- Floating spreads
- Vary with liquidity and volatility
- Can tighten during calm sessions and widen during news or low-liquidity periods
- Introduce uncertainty but often provide tighter rates in stable markets
Many retail traders switch from demo to live accounts only to find floating spreads have widened dramatically during news, adding hidden slippage to their trades.
How News Events and Overnight Holding Affect Spread
Volatility spikes and market closures trigger significant spread widening:
- News releases
- High-impact events can expand spread from as low as 1 pip up to 12 pips or more
- Sudden jumps may even reach 20 pips during extreme volatility
- Overnight rollover (swap time)
- Between major session closes and opens, spread can balloon to limit new trades
When spreads widen unexpectedly, open positions may be stopped out even if price hasn’t reached your stop-loss level—because the spread itself changes.
Real-World Spread Examples
| Asset Pair | Typical Tight Spread | Widened Spread | Notes |
|---|---|---|---|
| EUR/JPY (EJ) | 1 pip | 1–2 pips | Highly liquid, low risk |
| BTC/USD (crypto) | 2,000 points | 2,500+ points | Volatile, high risk |
For an in-depth look at position sizing and micro lots, check out: Forex Lot Sizes Explained
Managing Spread Costs in Your Trading Strategy
Spread directly eats into your profit potential. To minimize cost:
- Trade during peak liquidity sessions (e.g., London, New York overlap)
- Avoid holding positions through major economic announcements
- Use limit orders where appropriate to secure tighter fills
Broaden your understanding of key trading concepts:
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Choosing the Right Broker for Tight Spreads
When selecting a CFD or forex broker, compare base spreads, commissions, and platform features. Here are our top picks:
- 1. DERIV – Click here to trade with Deriv (best spreads in industry)
- 2. XM – Click here to open an XM account
- 3. FBS – Click here to open an FBS account
- 4. FTMO – Click here to join FTMO (for serious traders)
Conclusion
A clear grasp of spread in trading—and how it fluctuates—lets you anticipate costs, choose the right broker, and sharpen your entry/exit timing. Next time you open a chart, track both fixed and floating spread behavior, and use it as an edge rather than an unwelcome fee.
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