What Are Spreads

Spreads are one cost of doing business every investor should consider when participating in the financial markets. The difference between what a broker buys an asset for and what it sells an asset for at any one time is considered the spread. Therefore, when you open a market position, the market will have to move in your favorable direction past the cost of the spread for your trade to reach overall profitability. However, if the market stays within the spread, despite moving in a favorable direction, the trade will remain in a losing position.

The smaller the spread, the less is required for the market to move favorably in order for the trade to become profitable. However, some brokers do not use spreads but instead, make money by charging commissions. Other brokers may opt to have a mix of spread and commission.

Some brokers may charge transaction fees for each trade executed on their platforms. At Iron500, we do not charge any hidden fees.

You express the spread as the last large digit within a value quote. For example, the EUR/USD may have a sell price of 1.18948 and a buy price of 1.19048. The difference between the buy and sell prices is 0.00101 which would be expressed as 10.1 pips.