Bid-ask spread

The spread is the ask price less the bid price. It is quoted in the smallest unit the instrument moves in, pips for a currency pair and points or ticks elsewhere, and it exists because whoever quotes both sides is compensated for standing ready to deal on either. A position opened at the ask and immediately valued at the bid therefore begins at a negative figure equal to the spread multiplied by the size of the contract, before any commission.

What sets the width is how much competing interest stands near the price and how uncertain that price is. Spreads narrow on heavily traded instruments during the hours when several major centres are open, and widen when depth thins, around scheduled economic releases, at the daily rollover and whenever a market gaps. A quoted typical spread is an average over a past window rather than a floor, and a spread is only meaningful alongside the commission charged with it, since a narrow spread plus a separate commission can total more than a wider spread and none.

Two different quantities carry the same name and are routinely confused. One is the live figure on the quote, which changes tick by tick. The other is the statistic published in an instrument's specification or in marketing, computed over a past period. Comparing a live figure at one firm against an average at another compares two different measurements, and the comparison that means anything is the total of spread and commission on the same instrument at the same time of day.