Learning note · Costs · Basics
The spread and the real cost of a trade
Every trade starts slightly negative. Here is why, how to put a number on it, and the other costs that sit on top of the spread.
Open a trade and close it a second later, and you will almost always lose a little money. That small loss is the cost of trading, and the main part of it is the spread.
Bid, ask and spread
Every forex quote has two prices. The bid is the price you can sell at; the ask is the price you can buy at. The ask is always higher, and the difference is the spread.
EUR/USD 1.08500 / 1.08512: spread = 0.00012 = 1.2 pips
A buy opens at the ask and closes at the bid. A sell opens at the bid and closes at the ask. Either way, if the price does not move, you lose the spread.
Putting a number on it
Multiply the spread in pips by the pip value of your position:
1.2 pips × $10 per pip (1 standard lot EUR/USD) = $12
1.2 pips × $1 per pip (0.10 lots) = $1.20
That looks small until you compare it with the size of the move you are trying to catch. On a trade with a 10-pip target, a 1.2-pip spread uses up 12% of the target. On a 100-pip target it is 1.2%. This is why very short-term trading styles are especially sensitive to costs.
Spreads change
Quoted spreads are often lowest when the market is busy, for example when the London and New York sessions overlap. They can widen sharply around major news, at the daily rollover, on holidays and whenever liquidity is thin. Exotic pairs usually have much wider spreads than majors.
Other costs to add
- Commission. Some accounts charge a fee per lot in exchange for tighter spreads. Add both together to compare accounts fairly.
- Swap. Holding a position past the daily rollover usually means paying or receiving overnight interest. Over weeks, this can matter as much as the spread.
- Slippage. In fast markets your order may fill at a worse price than you saw, including stop losses.
- Currency conversion. If the pair is not quoted in your account currency, profits and losses are converted, sometimes with a small markup.
The break-even move
A useful habit is to ask: how far must price move in my favour before this trade is actually at zero? For a simple trade it is the spread plus any commission expressed in pips. If you pay a $7 commission per lot on EUR/USD, that is 0.7 pips, so with a 1.2-pip spread your break-even move is 1.9 pips.
What to do with this
- Include costs when you compare a stop and a target. A 1:2 trade on paper is slightly worse than 1:2 after costs.
- Be wary of very tight stops. If a stop is only a few times the spread, ordinary price noise can trigger it.
- Trade less often. Every trade pays the spread, so fewer, better-planned trades cost less.
In the practice simulator, each pair has a fixed spread and the order ticket shows the entry price after it, so you can see every trade begin slightly negative. Real spreads vary; the simulator keeps them fixed to make the idea easy to see. The profit / loss calculator lets you add costs to an example result.
Education, not advice. This note explains a concept with illustrative numbers. It is not a recommendation to trade. Currency trading carries risk, and losses can exceed expectations. See the risk disclaimer.