If you're wondering what spreads are in the forex market, you're certainly not the only trader. Spreads are one of the first questions traders ask when exploring CFDs. Simply defined as the difference between the bid and ask price that a trader pays to a broker, spreads represent the broker's method of making profits. The size of the spread can significantly impact traders' profits, so its stability is important for future planning.
This article provides a detailed explanation of the spread in forex, discusses the potential impact of spreads on traders' profits, and reviews the different types of spreads available. It also explains the options available for different types of trading accounts and how they work, depending on your trading strategy.
What is spread?
Spreads are the price differences between the bid and ask prices of a financial instrument. They are the fees charged by a broker like Exness for providing trading services in financial markets, including forex trading. Spreads can be considered a major expense borne by traders to cover brokerage costs, such as employee salaries, server and trading platform maintenance, new service development, and more.
How does the spread work?
Spreads work by dividing the market price of a financial instrument into two different prices on the trading platform. These two prices are called the "ask" and the "bid." When buying, the trade is executed at the ask price, which is always higher, and the trade is closed at the bid price. When selling, the opposite occurs: the trade is opened at the bid price and closed at the ask price. For this reason, traders always see a small loss upon opening any trade.
When trading currencies, forex traders can easily estimate the spread by observing the small loss that appears immediately upon opening a trade.
The Exness spread, which is the difference between two prices, typically ranges from approximately 0.005% to 0.01% of the contract's notional value. This can change depending on the financial instrument being traded, news, and the time of day. If you're a short-term trader, you may aim to trade financial instruments with the tightest possible spreads.
Where to Find Spreads
The most reliable way to find the current bid-ask spread for a financial instrument is to check the relevant chart on the MT5 or Exness platform. You can find the spread on the instrument's individual chart, in the Market Watch on MT5, or in the "+" menu on the Exness Web Platform.
You can also find the average spread on the Exness website under the information related to financial instruments. This page tells you what the average spread has been recently for major currency pairs.
Please note that the spread displayed on the Exness website is not the same as the spread you see directly on the trading platform; it represents the average spread for the previous day when the market was open.
Why Spreads Matter
A tighter or lower spread is important, as it will save you more money. When you pay less to trade, your total profits may be higher or your total losses may be lower. Similarly, having a fixed or "stable" spread makes it easier to plan for the future.
If you know exactly what spread you will be paying, you can conduct backtests and forward tests and be more confident in the accuracy of your results.
If you're new to trading, having a reasonably stable and consistent spread during periods when certain news events may impact the market is also important. Given the volatility of the forex market and the market activity around important news events such as the US jobs report (also known as the Non-Farm Payrolls report or "NFP"), it's difficult to have a truly stable spread during such times. However, some brokers or market makers, such as Exness, strive to maintain stability.
What are the types of spreads?
The spread, which represents the difference between the bid and ask, operates on several different axes. Typically, traders and brokers categorize spreads based on their rate of change, sometimes taking into account the frequency of changes. These changes are affected by a variety of factors, but liquidity and major news events are often the most important in determining spread movement.
Variable Spread
Most spreads, also known as "floating" or "variable," change based on several factors, such as the time of day, market conditions, news, liquidity, and trade volume. Variable spreads can vary widely, ranging from as little as a pip during quiet periods when markets are inactive to as high as tens of pips or more during major events or periods of high activity, such as market openings and closings. There are two other main types of spreads in the forex market.
Fixed Spread
A fixed spread is one that remains constant and does not change continuously. However, fixed spreads are extremely rare in retail trading, as they do not reflect the underlying market's underlying strength.
The "real" market. In any financial market, spreads are expected to change, even if only slightly, based on the status of the broker's order book. For example, during important events and releases, prices may change rapidly due to increased trading volume, resulting in many pending orders being executed quickly. In such cases, brokers need to increase their spreads to reduce their risk and that of their clients.
Stable Spread
Stable spreads are more similar to fixed spreads than floating spreads, but they are different from each other. At Exness, a stable spread remains the same for approximately 95% of the time and typically fluctuates no more than 50% of the average spread the rest of the time.
In contrast to floating spreads—which can be tens or hundreds of times higher than average during major news events or market openings and closings—stabilized spreads are different. A stable spread can make your trading journey easier. Not only can it save you money, but it can also help you plan your trades better and with greater confidence.
How to Calculate Spread
Understanding how spreads are calculated before you start trading is very important. You can rely on Exness's investment calculator to calculate spreads and help you estimate the cost of the spread, in addition to many other advantages. This tool provides an easy and reliable way to estimate trading costs, enabling you to make informed financial decisions while trading.
Pips and Points
A pip is primarily a measure of currency price movement, but it is also used to measure spreads. In most Forex trading situations, a pip is the fourth decimal place in a price quote. For example,
If you have a GBP/USD currency pair with buy and sell prices of 1.27841 and 1.27829, respectively, the pip would be the second number from the right, i.e., 1.2 pips.
Please note that the location of a pip may vary depending on the financial instrument being traded. For example, metals and cryptocurrencies are treated differently than most forex pairs, and JPY pairs also have different arrangements. The easiest way to understand a pip and how it works is to use a demo trading account and Exness' investment calculator. A pip is primarily used in the MetaTrader 4 and MetaTrader 5 trading platforms.
A pip is equivalent to one-tenth of a pip. For example, if the platform shows you that the spread between the dollar and the yen is 8 pips, this means that the spread is 0.8 pips. It's important to understand the difference between pips and pip because many platform functions, such as stop loss and take profit, can be ineffective if they are confused.
Pip Value/"Pip Profit"
The profit or loss resulting from a single pip movement has various names, including pip value, pip profit, and others, all of which refer to the amount of price movement equal to one pip.
To calculate the pip value, you need three things: the contract size (which is usually 100,000 units of the base currency in the forex market), the amount you are trading in contracts, and the pip size. Let's assume you are trading the GBPUSD pair using a mini contract size of 0.01 lots. The calculation would be as follows:
0.01 (contract size) x 100,000 (standard contract size) x 0.0001 (pip value) = $1, which is the pip value.
To calculate the spread cost, you can multiply this by the spread size as shown above. In this example, the result would be a spread of $1.20.
Please note that you don't need to do this manually unless you wish; any trading platform will calculate it automatically for you. You can also use Exness's investment calculator to easily find the spread value.
Your Options Regarding Spreads and Alternative Commissions
In trading, the spread refers to the difference between the buy and sell price of a particular financial instrument. Although the spread is the "default" payment method for most traders, many brokers, including Exness, offer flexibility in choosing the preferred method for paying for their services.
If you use strategies such as scalping or some short-term algorithms, you may not find spread-based pricing appropriate. For this reason, Exness has introduced Zero and Raw Spread accounts to give you more options to better suit your trading requirements.
Spread-Based Accounts
There are several accounts at Exness that use spread as a pricing model. Some of these accounts are classified as "standard," while others are classified as "pro."
The main difference between Standard and Pro accounts is the execution process. The Standard account uses market execution exclusively, while the Pro account uses instant execution for almost all financial instruments, with the exception of cryptocurrencies.
Exness offers the Pro account with the lowest spreads available and no commissions.
For most traders, the Pro account offers lower trading costs. Spreads on Pro accounts may be higher on average compared to Zero accounts, but there are no commissions. If you're considering using a specific time-bound strategy, excluding scalping and heavy day trading, and are willing to deposit a minimum of $200, a Pro account may be the right choice for you. However, if you don't want to deposit a large amount, you can still trade on a Standard account.
Zero Accounts
Exness also offers the Zero account option, which is one of the professional trading accounts that features commissions. With the Zero account, various financial instruments generally have no spreads
If you're a scalper or algorithmic trader, a Zero account may be a good choice for you. You can plan short-term, high-frequency trades with this account, which can be more effective because commissions are fixed for all available financial instruments.Trading. Any changes to commissions are announced in advance.
Please note that the Zero account does not allow you to trade financial instruments without spreads at all times. Exness offers Zero account spreads for the top 30 financial instruments. Naturally, some very rare currency pairs, such as the Australian dollar and Danish krone (AUDDKK), and relatively less-traded individual stocks, such as Broadcom (AVGO), will have the spread added to them in addition to the commission.
Raw Spread Accounts
If you want to use a variety of trading strategies, the Raw Spread account may be suitable for you. This professional account operates with a combination of spreads and commissions. What is the difference in trading a currency pair using the Raw Spread account specifically? The spreads are higher than the Zero account but lower than the Standard or Pro account. The commission is higher than the Standard or Pro account (which has no commissions) but lower than the Zero account.
The main potential advantage of using a Raw Spread account is that it gives you the flexibility to adapt your strategy to financial market conditions.
If your usual strategy or algorithmic trading isn't working, for example, you can temporarily switch to day trading, swing trading, or position trading—and then return to your algorithm later, without having to switch accounts to reduce costs.
Does Exness make money from client losses?
Absolutely not. About 90% of Exness' profits come from spreads, while the rest comes primarily from commissions collected from Zero and Raw Spread accounts. A small amount also comes from overnight fees charged on financial instruments.
Exness operates with complete transparency, and we consider it a key component of our success. We strongly believe that working in the best interests of our clients is also in our own best interests as a company. That's why we were the first company to publish our audited financial statements.
You can view Exness's financial audit statements on our website to understand what our clients collectively make on average each quarter. Of course, we don't prefer, and it's not in our best interest, for you to suffer losses; we make our profits not from client losses, but from the spread.
Why trust Exness to provide stable forex spreads?
When checking the quality of the spreads offered to you, don't rely on us as a reliable source; check the fixed spreads yourself. You can now check the spreads yourself while trading forex. Register a live Standard account—no deposit required—then open your preferred platform to check the live spreads you see at any time.
If you'd like to evaluate the spreads offered by Exness for the Pro, Zero, and Raw Spread accounts, you can open a demo trading account for each and study the spreads without depositing any funds. Once you find the right account for you and are ready to trade, you can open a live trading account to begin trading with real money.
Learn more about spreads and the unique benefits Exness offers to help you improve your trading experience. Experience the benefits of Exness's stable spreads by opening a demo Standard account now.
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