What a spread is
The spread is the gap between the bid (the price you sell at) and the ask (the price you buy at). You pay it on every trade, because a position opens at one side of the quote and is valued at the other. A new position therefore starts slightly negative. For the basics, see What is spread and Bid and ask.
Brokers quote spreads in one of two ways: fixed or floating.
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Fixed spread: how it works
With a fixed spread, the broker sets the gap between bid and ask in advance and keeps it the same in quiet and busy markets. A fixed spread broker usually runs a dealing desk. It takes the other side of client trades and sets its own quotes. See Broker execution models.
What you gain: you know your entry cost before you trade, and that cost does not jump during news.
What you give up: the fixed figure is usually wider than the floating spread in calm conditions. When the market moves fast, the broker may refuse your price and offer a new one instead of filling you at the fixed spread. This is a requote.
Floating spread: how it works
A floating spread (also called a variable spread) is the gap that the market's best bid and ask create at each moment. The broker passes through prices from its liquidity providers, sometimes with a markup or a separate commission. Those providers are the banks and other firms that quote prices.
The floating spread meaning in plain terms: the cost changes all the time. It can be very tight when many participants are quoting. It can widen sharply when they pull back.
When floating spreads widen
Floating spreads widen when liquidity is thin or when uncertainty rises:
- Scheduled news, such as central bank decisions, inflation data and employment reports. Providers widen quotes just before and after the release.
- Session changes and daily rollover. Around the close of the New York session, many providers reset, and spreads often widen for a short time. See Trading sessions and Rollover.
- Market opens after weekends and holidays, often together with price gaps.
- Less-traded instruments, such as exotic pairs, some metals and indices outside their main hours.
- Sudden volatility caused by unexpected events.
A wide spread can trigger a stop loss even if the chart's mid price never reached it. Platforms usually draw the bid line on the chart, but sell stops are hit by the bid and buy stops by the ask.
Requotes vs slippage: the trade-off
Each spread type handles fast markets in a different way:
- Fixed spread → requotes. The spread stays the same, but your order may not fill at the price you clicked. You get a new price to accept or reject. See Requotes.
- Floating spread → slippage. Market orders usually fill, but at the next available price, which can be worse or better than the one you saw. See Slippage.
Neither type removes the cost of a fast market. A fixed spread shows that cost as missed or repriced trades. A floating spread shows it as a wider spread and a different fill price.
Precise definitions for experienced traders
- Quoted spread: ask minus bid at a given moment, measured in pips or points. See Pips, points, pipettes.
- Effective spread: the cost you actually paid. It is measured from the mid price at the moment you sent the order to your fill price. It includes slippage.
- Typical or average spread: a broker's statistic over a period. It hides peaks, so check the period it covers and whether it includes news hours.
- Minimum spread: the tightest value seen. It says little about what you will pay at busy times.
- Raw spread plus commission: a floating spread with little or no markup, plus a separate charge per lot. See Commission per lot.
The money cost of a spread is the spread in pips times the pip value for your lot size. Use the calculators with your own pair, lot and spread rather than relying on examples. Then add commission and swap to get the total cost of a trade.
Side-by-side
| Fixed spread | Floating spread | |
|---|---|---|
| Who sets it | Broker, in advance | Market quotes, moment to moment |
| Calm market | Usually wider | Usually tighter |
| News and low liquidity | Stays the same | Can widen sharply |
| Fast-market risk | Requotes | Slippage |
| Cost planning | Predictable | Needs a check before each trade |
Before you trade
Check the current spread in the platform's market watch window before each order, especially near news. Test your timing on a demo account. Demo fills may differ from live fills, though. Account types differ in how they price spreads; compare them on Account types and confirm the current conditions on the broker's official site.
Leveraged forex and CFD trading can lose money fast, and spread widening can add to losses. Pakistani residents should also read Law and regulators. Per the SECP, offshore platforms have no Pakistani licence or oversight and offer no legal protection or recourse.
Frequent questions
Which is cheaper, fixed or floating?
It depends on when you trade. Floating is often tighter in calm hours. Fixed can cost less during news, if your order gets filled.
Does a fixed spread ever change?
Some brokers' terms allow them to widen it in extreme conditions. Read the account terms.
Why did my stop trigger before the chart reached it?
The spread widened. A sell stop fills at the bid, and a buy stop fills at the ask.
Is slippage always negative?
No. It can also fill you at a better price, depending on the execution rules.