How to Read Forex Spreads and Calculate Your Real Costs

Estimated reading time: 10 minutes

Spreads are the single largest recurring cost in forex trading, yet most beginners do not fully understand how they work. This tutorial explains what spreads are, how to convert them into real dollar amounts, and how to choose the account type that minimises your costs.

Quick answer: the spread is the ask price minus the bid price. Divide it by the pip size (0.0001 for most pairs, 0.01 for yen pairs) to get pips, then multiply by the pip value for your trade size — $10 per pip on a standard lot of a USD-quoted pair such as EUR/USD. A 1.2-pip spread on one standard lot therefore costs $12. On a raw account, add the commission for both sides of the trade. For the calculation alone, with pipettes, yen pairs and more worked examples, see how to calculate the spread in forex.

Step 1: Understand Bid vs Ask

Every currency pair has two prices displayed side by side. The bid price is the highest price a buyer is willing to pay — this is the price you receive when you sell. The ask price is the lowest price a seller will accept — this is the price you pay when you buy.

The difference between the bid and the ask is called the spread. If EUR/USD shows a bid of 1.08500 and an ask of 1.08520, the spread is 0.00020, or 2.0 pips.

The spread is not a fee the broker charges separately — it is built into the price. The moment you open a trade, you are automatically "down" by the spread amount. Your trade only becomes profitable once the price moves beyond the spread.

Step 2: Calculate Spread in Pips

A pip is the standard unit of measurement in forex. For most currency pairs, one pip equals 0.0001 (the fourth decimal place). For Japanese yen pairs, one pip equals 0.01 (the second decimal place).

To calculate the spread in pips, subtract the bid from the ask and divide by the pip size. For EUR/USD at bid 1.08500 and ask 1.08520: (1.08520 - 1.08500) / 0.0001 = 2.0 pips.

Many platforms show spreads in "points" rather than pips. A point is one-tenth of a pip. A spread shown as 20 points equals 2.0 pips.

Yen pairs work the same way with a different pip size. Take an illustrative USD/JPY quote of 150.250 bid and 150.270 ask: (150.270 - 150.250) / 0.01 = 2.0 pips. The pip value is where yen pairs differ, as Step 3 shows.

Step 3: Convert Pips to Dollars

The dollar value of a pip depends on the lot size and the currency pair. For a standard lot (100,000 units) on EUR/USD, one pip equals approximately $10 USD. For a mini lot (10,000 units), one pip equals $1. For a micro lot (1,000 units), one pip equals $0.10.

If the spread on EUR/USD is 1.5 pips and you trade one standard lot, the spread costs you $15 on entry. This cost is per trade, so active traders who open dozens of positions per day can accumulate significant spread expenses.

For a pair where the US dollar is not the quote currency, the pip value comes out in the other currency first. On USD/JPY one pip is 0.01 x 100,000 = 1,000 yen per standard lot. Converted at the illustrative 150.27 ask from Step 2, that is 1,000 / 150.27 = about $6.65 a pip, so the 2.0-pip spread costs about $13.31 per lot, not $20. The same spread in pips can cost a different amount in dollars on different pairs.

Spreads are not constant. They widen hardest around scheduled data, which NFP and news trading volatility works through.

Step 4: Compare Raw vs Standard Accounts

Brokers typically offer two account types. A standard account builds the broker's charge into a wider spread and charges no commission. A raw spread or ECN account shows a spread close to the underlying market and charges a commission per lot.

For example, take an assumed average EUR/USD spread of 1.1 pips on a standard account and 0.1 pips on a raw account with a $7 round-turn commission (Pepperstone's Razor account lists commission "from $3.50/lot/side", read 30 September 2026; the average spreads here are assumptions for the arithmetic, not published figures). On one standard lot, the standard account costs about $11. The raw account costs about $1 (spread) plus $7 (commission) = $8. On these assumptions the raw account saves $3 per trade.

Step 5: Factor in Commissions

Commission is usually quoted per lot, per side — so you pay it when you open and again when you close. Eightcap's Raw account, for example, lists USD 3.50, EUR 2.75 or GBP 2.25 per standard lot per side depending on account currency (read 30 September 2026). Always double a per-side figure before comparing it with a spread.

Watch for the unit, too. Read on 16 October 2026, brokers quoted their raw-account commissions in three different ways:

Convert each to the same basis, dollars per lot per round turn, before you compare. IC also publishes an average EUR/USD spread of 0.1 pips on its Raw Spread account, which puts its MetaTrader all-in cost at about $1 of spread plus $7 of commission, or $8 per lot.

Always add the commission to the spread cost before comparing. A broker advertising "0.0 pip spreads" with a $7 round-turn commission costs $7 per lot all-in; a broker showing 0.5-pip spreads with a $3 round-turn commission costs $5 + $3 = $8. Here the zero-spread account is the cheaper one by $1 — small, but over hundreds of trades it compounds. The comparison can just as easily go the other way, which is why the arithmetic matters more than the headline. Raw vs standard: when is it cheaper? works through the break-even point.

Step 6: Use a Spread Calculator

Most reputable brokers provide a cost calculator on their website. Enter the currency pair, your lot size, and the account type. The calculator returns the spread cost, commission, swap rate, and total cost in your account currency.

Third-party tools like Myfxbook also publish live spread comparisons across brokers and account types. These tools are useful for verifying that a broker's advertised spreads match reality.

Step 7: Choose the Right Account Type

If you trade more than a few times per week, a raw spread account almost always works out cheaper. The lower per-trade cost adds up quickly. If you are a position trader who holds trades for days or weeks and only opens a handful per month, a standard account with no commission is simpler and the cost difference is negligible.

Some brokers also offer "zero" or "ultra-low" accounts that blend elements of both. Always calculate the total all-in cost before choosing — marketing names can be misleading.

When the Spread Stops Being Your Biggest Cost

Everything above is paid once per trade. A position you keep open overnight also pays or receives swap, every night. Pepperstone's pricing page, read on 16 October 2026, states that a position held past 5pm New York time receives an interest adjustment, and that the Wednesday rollover on pairs settling two days after the trade is charged at three times the daily amount.

Suppose your platform shows a swap of -$3.10 per lot per night on your side of a pair. That figure is invented for the arithmetic; the real one is in the symbol's specification window and changes often. Hold one lot from Monday to the following Monday:

Against a spread cost of about $12 per lot on a 1.2-pip spread, the swap overtakes the spread on the fourth night. A swing trader comparing brokers should therefore read the swap figures for the pairs they hold, not just the spreads. Forex swap and rollover fees explained covers why the charge can turn into a credit on the other side of the same pair.

Frequently Asked Questions

What is a good spread for EUR/USD?

It depends on the account. On a raw account the spread is close to zero and the cost sits in the commission; IC publishes an average EUR/USD spread of 0.1 pips on its Raw Spread account. On a commission-free account the spread carries the whole cost, so it will be wider. Compare all-in cost per lot, not the spread alone.

Why does my spread widen at certain times?

Spreads widen when liquidity is thin, such as around the daily rollover, at weekends and around major data releases. Forex trading sessions and liquidity shows when that happens.

Is a spread charged when I open or when I close?

It is built into both prices. You buy at the ask and sell at the bid, so you pay the full spread once over the round trip: you start the trade down by the spread.

How do I compare a raw account with a standard account?

Add the average spread cost to the commission on both sides for the raw account, and compare it with the average spread cost of the standard account, for the same pair and lot size. Steps 4 and 5 above show the arithmetic.

Next Step

Once you can price a trade, compare accounts on the pairs you actually trade: our guide to the lowest-spread forex accounts and the broker comparison set published costs side by side, and spread vs commission shows the break-even formula. To see how two raw-pricing brokers compare on these exact costs, read Pepperstone vs IC Markets.

Sources: Pepperstone pricing and trading-accounts pages, and IC's trading-accounts overview, read 16 October 2026 (commissions, the 0.1-pip IC average, swap timing and the Wednesday triple charge); Eightcap and Pepperstone Razor figures in Steps 4 and 5 as read on 30 September 2026. Example quotes and the swap figure are illustrations.

Risk Disclaimer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 65% and 82% of retail investor accounts lose money when trading CFDs with these providers. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. This tutorial is for informational purposes only and does not constitute financial advice.