Spread cost

The spread cost is the difference between the bid (buy) and ask (sell) price of a currency pair at the moment a trade is executed. This difference is how brokers generate profit from each transaction. For example, if EUR/USD has a bid of 1.0700 and an ask of 1.0701, the spread is 0.0001, or one pip. A trader effectively buys at the higher ask price and sells at the lower bid price.

For a retail trader, the spread cost is a direct transaction expense that must be overcome for a trade to become profitable. It represents the initial loss on every position opened. A wider spread means a higher immediate cost, requiring a larger price movement in the trader's favor to reach breakeven. High-frequency strategies like scalping are particularly sensitive to spread costs, as they aim for small profits.