When you open a trade, you may notice that your position immediately shows a small unrealised loss. This is usually due to the spread, which is the difference between the Ask (buy) price and the Bid (sell) price of a trading product. The spread is a trading cost reflected in the prices at which you open and close a position. Your position will only reach breakeven once favourable price movements have offset the spread, excluding any other trading costs.
How can I check my spread for each trade ?
You can calculate the spread for each trade using the following formula:
Spread = Ask Price − Bid Price
For example, if EUR/USD is quoted at 1.15840 / 1.15855:
Price Type |
EUR/USD Price |
|---|---|
Bid (Sell) Price |
1.15840 |
Ask (Buy) Price |
1.15855 |
Spread |
0.00015 (1.5 pips) |
This means the spread for EUR/USD is 1.5 pips.
When you open a position:
- Buy (Long): You enter at the Ask price and close at the Bid price.
- Sell (Short): You enter at the Bid price and close at the Ask price.
As a result, your position may initially show an unrealised loss equivalent to the spread, assuming the market prices remain unchanged.
Will the spread change if I use different trading account types?
Yes. Spreads may vary depending on the trading product, trading account type, and market conditions.
Different trading account types may have different trading cost structures:
- Lower spreads with commission: Some trading account types offer tighter spreads but charge a separate trading commission.
- Wider spreads without commission: Other trading account types may have wider spreads without a separate commission.
When comparing trading account types, consider the total trading cost, including both the spread and any applicable commission.
For typical spreads across different trading accounts, refer to What types of accounts are available?.
What should I check before opening a trade?
Before opening a position, understanding how spreads work can help you better estimate your trading costs before opening a position. consider the following:
- Check the current spread: Review the difference between the Bid and Ask prices of your selected trading product.
- Review your trading account type: Different trading account types may have different spread and commission structures.
- Consider market conditions: Spreads may widen during periods of high volatility or reduced market liquidity.
- Compare total trading costs: Consider both the spread and any applicable commission when evaluating your trading costs.
