The bid, the ask & the spread

Open any trading screen and you will see not one price but two: the bid and the ask. The bid is the price at which you can sell the base currency; the ask (sometimes called the offer) is the price at which you can buy it. The ask is always slightly higher than the bid.

The difference between them is called the spread, and it is the cost you pay to enter a trade. Suppose EUR/USD shows a bid of 1.1050 and an ask of 1.1051. The spread is one pip. The moment you buy at the ask, the market would only sell back at the bid — so you begin every trade fractionally in the red, by exactly the spread.

This is why the spread matters so much. On a scalping strategy that aims for a handful of pips, a two-pip spread can eat most of your target. On a longer swing trade aiming for two hundred pips, the same spread barely registers. The spread is not good or bad in isolation; it matters relative to how far you expect price to travel.

The spread is not good or bad in isolation. It matters relative to how far you expect price to travel.

Spreads widen and tighten with liquidity. During the busy overlap of the London and New York sessions, major pairs often show razor-thin spreads. During quiet hours, holidays, or major news releases, spreads can balloon. A disciplined trader checks the spread before entering and treats an unusually wide one as a warning that the market is thin or nervous.

Think of the spread as the entry fee at the dojo door. It is small, it is constant, and once you respect it you will design trades that comfortably clear it.