The bid price
The bid is the price at which the market is willing to buy from you. If you're selling EUR/USD, this is the price you get. It's called the bid because it's what buyers are bidding — how much they'll pay for the base currency.
The ask price
The ask (sometimes called the offer) is the price at which the market is willing to sell to you. If you're buying EUR/USD, this is the price you pay. The ask is always slightly higher than the bid.
The spread
The spread is the difference between the ask and the bid. If EUR/USD is quoted 1.08500 / 1.08505, the spread is half a pip. That gap exists because market makers — the banks and firms providing continuous prices — need to be compensated for the risk of standing in the middle. It's their revenue for making a market at all.
For you, the spread is the first cost of every trade. The instant you open a position, you're down by exactly the spread. If you buy at the ask (1.08505) and immediately sell at the bid (1.08500), you've lost half a pip without the market moving. Price has to travel at least the spread just to get you to break-even.
Why spreads change
Spreads are not fixed. They breathe throughout the day depending on two main forces: liquidity and volatility.
Market liquidity
Liquidity is how many willing buyers and sellers are actively quoting. When liquidity is deep — during the London session, or the London/New York overlap — spreads on the major pairs are typically at their tightest. Deep liquidity means many market makers competing, and competition compresses the spread.
When liquidity thins — late in the Asian session on non-Asian pairs, during holidays, near the daily rollover — spreads widen. There are fewer market makers around, and those still quoting price the risk of holding a position higher.
Volatility
Volatility is how quickly and how far price is moving. Sudden volatility increases the risk to market makers of getting caught on the wrong side of a fast move, so they widen the spread to compensate. Fast market equals wide spread, almost every time.
Trading costs
Add the spread to any commission your broker charges and you have the round-trip cost of a trade. On a tight-spread pair like EUR/USD during London, that cost is trivial for most position sizes. On an exotic pair or during a thin overnight session, it can be big enough to change whether a strategy is profitable.
A useful habit: before taking a trade, glance at the current spread. If it's noticeably wider than usual, ask yourself why — and whether you should wait.
Why spreads widen during major news events
In the minutes before a high-impact release — a rate decision, CPI, Non-Farm Payrolls — market makers deliberately pull back or widen their quotes. They don't want to be holding inventory when a number lands that could move price hundreds of pips in seconds.
The result is a spread that can jump from half a pip to five or ten pips in an instant, exactly when you least want it. Stops sitting in that widened zone can be triggered by a wick rather than a real move. This is why the Trading Plan flags dangerous windows around scheduled releases — the point isn't just the direction of the move, it's the execution environment.
Practical takeaway
You cannot avoid the spread. You can avoid trading when it's punitively wide. Trade major pairs during major sessions, respect the dangerous windows around news, and the spread stops being a meaningful drag on your results.
Key takeaways
- The bid is where you sell; the ask is where you buy
- The spread is the first cost of every trade — you start each position slightly behind
- Deep liquidity narrows spreads; thin liquidity and high volatility widen them
- Spreads widen sharply around high-impact news — often exactly when stops sit
- Check the spread before entering; trade the right pairs at the right times