The bid-ask spread explained (and what it costs you)

Every trade starts at a small loss. Not because you were wrong — because of the spread, the gap between what you pay to buy and what you receive to sell, collected on the way in and the way out.

Bid, ask, and the gap between them

At any moment a market shows two prices:

The bid — the highest price a buyer is currently willing to pay. It’s the price you sell at.
The ask (or offer) — the lowest price a seller will accept. It’s the price you buy at.

The spread is simply ask − bid. Because you always buy at the higher ask and sell at the lower bid, you cross that gap the instant you enter. Open a position and close it immediately with no market movement at all, and you’d still be down by the spread. That’s why a fresh trade shows a small floating loss the moment it fills — the spread, not a bad entry.

On a 5-decimal forex feed, a spread is usually quoted in pips or fractions of a pip: EUR/USD might show a 0.2-pip spread in quiet conditions. On futures it’s often exactly one tick. Either way, it’s the toll for admission.

Why the spread exists

The spread is the compensation for whoever stands ready to trade with you — the market maker or liquidity provider. They quote both a bid and an ask continuously, taking on the risk of holding inventory, and the spread is their edge for providing that service. It’s the price of liquidity: the ability to get in and out instantly at a known price.

That’s also why the spread isn’t constant. It widens when liquidity dries up — overnight, during rollover, in thin sessions, and violently around high-impact news. A pair that costs 0.2 pips at midday London can gap to several pips in the seconds around a rate decision. The market maker widens the spread to protect itself when it can’t hedge cleanly. Getting stopped out “for no reason” right after a news print is often a spread that briefly blew out and touched your stop.

Fixed vs variable spreads

Brokers offer two models, and the difference matters for planning:

Variable (floating) spreads track real market conditions — tight when liquidity is deep, wider when it’s thin. Most raw-pricing and ECN-style accounts use these. You get the best case most of the time and the worst case exactly when volatility spikes.
Fixed spreads stay constant regardless of conditions. They’re predictable, but you pay for that predictability with a wider average, and brokers may reject or requote fills when the real market moves faster than the fixed quote.

Neither is free. With variable spreads plus a commission (common on raw accounts), your true cost is spread + commission per round trip — always add both when you tally what a trade costs.

What a spread actually costs per round trip

Turn it into money the same way you’d price any pip or tick move — by your position size:

On a standard lot (~$10/pip), a 1-pip spread costs about $10 round trip.
On a mini lot (~$1/pip), the same spread costs about $1.
On a micro lot (~$0.10/pip), about $0.10.

Add commission on top if your account charges it. Now scale it: a strategy that takes several trades a day pays that toll dozens of times a week. The spread is a fixed cost multiplied by your frequency — high-frequency, small-target styles pay it far more often than a swing trader who holds for days.

Why tight targets get hurt most

Here’s the part that quietly wrecks otherwise-decent systems. The spread is a fixed cost, so it eats a larger fraction of a small target than a big one:

Aim for 5 pips and pay a 1-pip spread, and 20% of your target is gone before you’re right.
Aim for 50 pips with the same spread, and it costs 2%.

Same spread, wildly different damage to your edge. This is why scalping the tightest targets is the hardest way to stay profitable — your reward-to-risk has to overcome a toll that’s proportionally enormous. Model it honestly before you commit: the risk-reward calculator lets you check whether a target still pays after the spread and commission come out.

For funded traders the stakes are higher, because spread cost compounds against a target and a drawdown limit at the same time. Shibiki auto-journals your real fill prices, so its live edge health — a Wilson confidence interval on your win rate and expectancy — is built from what you actually got filled at, spread included, not a clean backtest that pretends the spread away. That’s the difference between an edge that survives contact with the market and one that only existed in theory. Choosing a lower-spread connection like cTrader or MT5 helps, but always confirm real spread and commission with your broker and prop firm — and if you trade with a firm like FundedNext, check how their pricing and rules treat news-driven spread widening.