Spread

The distance between the two sides of a two way price: the ask, at which a buyer deals, less the bid, at which a seller deals. Because a position opens on one side and closes on the other, the difference is incurred once across the round trip, which is why it is described as a cost rather than as a feature of the quote. What is being paid for is immediacy: the ability to deal now rather than to wait for someone wanting the other side.

The width is set by conditions rather than by a schedule. Deep and heavily traded instruments quote tighter than thin ones, the same instrument quotes tighter when the main centres for it are open than in the hours between them, and quotes widen around scheduled releases and in fast markets because whoever is quoting both sides is exposed while doing so. Size matters as well, since a price shown for a small amount is not necessarily available for a large one. A published typical figure is an average taken over a period, and an average is not a floor.

Three misreadings recur. Units: a figure quoted in pips, in points and in money are three different numbers for the same width, and comparisons across providers frequently mix them. Basis: a minimum quoted by one and an average quoted by another are not comparable, and neither is comparable across accounts until commission is folded in, because an account quoting raw dealing spreads with a separate commission and an account with no commission and a wider quote can carry the same total cost. And chart position: most charts plot the bid, so a purchase enters at a price above the line and appears in deficit by the width of the spread the moment it opens, which is arithmetic rather than a bad fill.