What is Spread, and how is it different from Commission?

When you first open a trading platform, the first thing you see next to a currency pair are two unequal numbers. One is called Bid, the other is called Ask. The difference between these two is the spread, and it's a cost incurred immediately when you click the 'open order' button, regardless of where the price goes afterward.

This article explains what spread is, how it's calculated as a real cost, the difference between fixed and floating spreads, and the most common point of confusion: how spread and commission are different.

What is Spread?

Spread is the difference between the Bid price (the price at which the market buys from you) and the Ask price (the price at which the market sells to you) for a given currency pair at that moment. It's an implicit cost incurred immediately upon opening a position, not a separate fee.

The unit of measurement for spread is pip (for most currency pairs, it's the fourth decimal place) or point (the last decimal place, 10 times more precise than a pip). For example, if EUR/USD shows a Bid of 1.08500 and an Ask of 1.08515, the spread here is 1.5 pips. This number changes constantly with market conditions; it's not always a fixed value. It depends on the spread model used by the broker, which is our next topic.

How to Calculate the Real Cost of Spread

The pip figure alone doesn't tell you much unless converted into actual money. The rough formula is: Spread Cost = Number of pips x Value per pip x Lot size.

Let's look at an example. Suppose you trade EUR/USD with a standard lot size (100,000 units of the base currency) and a spread of 1.5 pips. The value per pip for EUR/USD at 1 standard lot is approximately 10 dollars.

Spread Cost = 1.5 x 10 dollars = 15 dollars, or approximately 525 Thai Baht (at an exchange rate of about 35 Baht per dollar). This is the money that disappears instantly from the very first second you open an order, even before the price moves anywhere. If you trade with a 0.1 lot size, the cost decreases proportionally to about 1.5 dollars or 52.5 Baht.

A commonly overlooked point is that for frequent traders using large lot sizes, the accumulated monthly spread cost can be much higher than anticipated. Understanding this figure is as important as understanding leverage, which allows you to open large positions with less capital, because the larger the position, the greater the spread cost.

How Do Fixed and Floating Spreads Differ?

Most Forex brokers offer two types of spreads, and the choice of which to use impacts the predictability of your costs.

Neither type is superior in all situations; it depends on your trading style. High-frequency short-term traders often prefer floating spreads that are narrow during good liquidity, while those who need predictable cost calculations in advance might choose fixed, even if it means paying more during certain periods.

How Does Spread Differ from Commission?

This is where newcomers often get most confused, as both are trading costs but are collected through different mechanisms.

Some accounts use only spreads with no separate commission, while other accounts (often ECN) use very narrow, almost zero spreads but charge a separate commission every time an order is opened or closed. The most accurate way to compare is to combine both as a total cost per trade, rather than just looking at the spread figure alone and concluding which account is cheaper.

What Makes Spreads Widen or Narrow?

Market liquidity is the primary variable. During periods when several major markets are open simultaneously, such as when the London and New York markets overlap, liquidity is typically high, and spreads are narrower than usual.

During periods of thin markets, such as before the Asian market opens or during long holidays, liquidity decreases, and spreads tend to widen accordingly. Also, during major economic news announcements, spreads may temporarily widen due to price uncertainty. This is also related to slippage. If you want to understand the detailed mechanism of spread widening during news events and volatility, there is a separate article specifically covering this topic.

How to Check Spreads Before Live Trading to Avoid Disadvantage

The spread figures advertised by brokers (e.g., "starting from 0.1 pip") are often figures under the best market conditions, not what you'll encounter all the time. A more accurate method is to open a live platform and observe the real-time spread of the currency pair you intend to trade, during the actual time you plan to trade, rather than just looking at marketing figures on a website.

Another point to consider before deciding is to calculate the spread cost in actual money based on the order size you will actually use, not just floating pip numbers, because different lot sizes result in proportionally different actual costs. And before depositing money with any broker, checking the broker's reliability is another step, separate from spreads but equally important. 7 Steps to Check if a Forex Broker is Reliable Before Depositing Funds is a practical starting point.

Frequently Asked Questions (FAQ)

Please note: Forex trading is not yet licensed or regulated by any authority in Thailand. The Bank of Thailand does not have a policy to issue Forex business licenses to retail investors (Reference: Thai PBS), and the SEC itself confirms that the Forex business is not under the supervision of the SEC but rather under the foreign exchange control law (Reference: The Standard)

This article is provided for general knowledge only, not as personal investment advice, and does not guarantee any returns. Traders should conduct further research and assess risks independently before making any decisions.

How does Spread differ from commission? A quick summary

Spread is the Bid/Ask difference embedded in the price, visible immediately when opening the chart. Commission is a separate fee deducted when opening or closing an order. Some accounts have only one, while others have both.

Which is better: fixed or floating spread?

There's no definitive answer; it depends on your trading style. Those who need predictable cost calculations in advance often choose fixed, while those who trade during high liquidity periods and can accept uncertainty often benefit from floating spreads, which are narrower during normal market conditions.

What is considered a good spread?

There's no universal number applicable to all currency pairs. Major pairs like EUR/USD typically have narrower spreads than minor or exotic pairs due to higher liquidity. A more accurate comparison method is to look at the spread of the same currency pair across multiple brokers, rather than comparing spreads between different currency pairs.

Are gold spreads and Forex spreads different?

Yes, they are different. Gold (XAU/USD) typically has significantly wider spreads than major currency pairs in the same unit because its market characteristics and liquidity differ from general Forex currency pairs. Detailed mechanisms and comparative figures can be found in What is Gold Spread and Why is it Wider Than Forex Spread?

Summary

Spread is an unavoidable cost from the very first second you open an order, regardless of where the price goes afterward. Understanding how it differs from commission and which type (fixed or floating) suits your trading style helps you choose a broker and account type that truly meets your needs, rather than just chasing attractive advertised figures on a website.

Trading costs also have other dimensions that need to be understood concurrently, including swap fees for holding positions overnight (read more at What is Swap Fee? How to Calculate Overnight Swap Costs) and leverage, where the larger the position opened, the greater the spread cost per trade. All of this should be understood before committing real money, not after you've already started trading.

References

• Investor.gov: Definition of Bid-Ask Spread
• BIS Triennial Central Bank Survey 2025: Foreign Exchange Market Liquidity and Turnover
• Thai PBS: Status of Forex Regulation in Thailand
• The Standard: SEC's Stance on the Forex Business