If this question has ever crossed your mind — what is spread in Forex — you’re not alone. Understanding how spreads work is one of the most crucial aspects for traders aiming to succeed in the currency market. Whether you’re a beginner or an experienced investor, spreads can significantly influence your trading performance, costs, and overall profit margins.
In today’s digital age, and through choosing a reliable online forex trading platform, traders can easily explore different types of spreads and choose the one that best suits their trading strategy — raw or fixed.
Understanding Forex Spreads
In forex trading, the spread refers to the difference between the bid (selling) and ask (buying) price of a currency pair. Essentially, this is the broker’s fee for executing a trade. For example, if the EUR/USD pair has a bid price of 1.1000 and an ask price of 1.1002, the spread is 2 pips.
Spreads are important because they determine your transaction cost. The narrower the spread, the less you pay to enter or exit a position. However, spreads can vary depending on several factors — market volatility, liquidity, and the type of forex account you choose.
There are two main types of spreads in forex trading: raw spreads and fixed spreads. Each has its unique characteristics, advantages, and potential drawbacks, which we’ll explore in detail below.
Raw Spreads: The Real Market Price
Raw spreads are the most transparent form of pricing because they reflect real-time market conditions without any additional markups from the broker. These spreads are often very tight — sometimes as low as 0.0 pips — and fluctuate according to liquidity and volatility.
Pros of Raw Spreads:
- Lower trading costs: Since brokers don’t add markups, traders benefit from minimal spreads, which is ideal for frequent or high-volume traders.
- Faster execution: Raw spread accounts usually have direct access to liquidity providers, ensuring quicker trade execution — a major advantage for scalpers and day traders.
- Better for algorithmic trading: EA and automated trading strategies perform more efficiently when spreads are tight and consistent.
Cons of Raw Spreads:
- Commission charges: Brokers typically charge a small commission per lot traded. While the spread is lower, you’ll need to account for this additional cost.
- Fluctuating spreads: During high volatility or low liquidity periods, spreads can widen unexpectedly, which might affect risk management.
For traders who value transparency and speed, raw spreads can be a highly efficient choice. For example, Orbex offers its ZERO Spread Account, where spreads, swaps, and fees start from 0, and commissions are as low as $1 per side lot — one of the most competitive rates in the industry.
Fixed Spreads: Stability and Predictability
Fixed spreads, on the other hand, remain constant regardless of market conditions. The broker adds a markup to the raw market price to ensure that the spread does not fluctuate during trading hours.
Pros of Fixed Spreads:
- Predictable trading costs: You always know how much you’ll pay to open or close a trade. This can be reassuring for beginners who prefer stability.
- Ideal for volatile markets: During major news events, fixed spreads protect traders from unexpected cost increases caused by sudden market movements.
- Easier planning: Since spreads remain constant, it’s easier to calculate break-even points and potential profits in advance.
Cons of Fixed Spreads:
- Slightly higher overall cost: Because brokers include a markup, fixed spreads are usually wider than raw spreads, meaning you may pay more per trade.
- Slower execution: Fixed spread accounts often operate through dealing desks, which can cause slight delays during periods of high activity.
In short, fixed spreads are better suited for traders who value consistency and prefer to avoid sudden changes in trading costs — such as beginners or those who trade around economic announcements.
Choosing Between Raw and Fixed Spreads
Your choice between raw and fixed spreads depends largely on your trading style and strategy:
- Scalpers and day traders: Prefer raw spreads for tighter margins and faster execution.
- Swing and long-term traders: Often choose fixed spreads for predictability and stability.
- Automated traders: Tend to favour raw spreads due to the precision required by algorithms.
- Beginners: Might start with fixed spreads to simplify their cost management while learning the market.
When comparing brokers, always look beyond the spread alone. Consider commissions, swap fees, order execution time, and regulatory security. For instance, Orbex’s ZERO Spread Account not only offers raw spreads starting from 0 but also provides $0 overnight swaps and access to advanced tools like MetaTrader 4 and Trading Central analytics.
Why the Spread Type Matters
The type of spread you trade with directly impacts your profitability. Even a small difference in spread can accumulate significantly over hundreds of trades. For example, a 1-pip difference on a standard lot can mean an extra $10 cost per trade — and for active traders, that adds up quickly.
Additionally, spreads can influence your risk management approach. Narrower spreads allow for tighter stop losses and potentially higher reward-to-risk ratios, while fixed spreads provide peace of mind during unpredictable market swings.
Conclusion
Both raw and fixed spreads play essential roles in the forex market, catering to different types of traders and strategies. Raw spreads are perfect for experienced traders who prioritise speed, transparency, and low costs. Fixed spreads, on the other hand, appeal to those who value stability and simplicity.
Whichever you choose, it’s crucial to trade with a trusted broker that provides fair pricing, regulatory security, and reliable technology. With Orbex, traders can enjoy world-class conditions, low fees, and fast execution — all designed to help them trade smarter and more efficiently in the dynamic world of forex.
