What Is a Spread? How Forex Brokers Actually Make Money

✓ Last verified 2026-09-01

Most new traders focus on leverage and profit targets. The spread gets far less attention, even though it’s the one cost that applies to every single trade you place, win or lose.

What the spread actually is

Every currency pair has two prices at any moment: the bid (what the broker will pay to buy from you) and the ask (what the broker will charge you to sell to you). The difference between them is the spread. If EUR/USD shows a bid of 1.1000 and an ask of 1.1002, the spread is 2 pips.

When you open a trade, you enter at the ask price and would close at the bid price. That gap means a trade is already slightly “underwater” the instant you open it — the market has to move in your favor by at least the spread just for you to break even.

How brokers make money from it

Two broad models exist, and the distinction matters for understanding a broker’s incentives:

• Market maker model — the broker sets its own bid/ask prices and takes the other side of your trade internally. The spread (and sometimes a markup on it) is a direct source of revenue, and in this model the broker’s profit can be structurally tied to trader losses, which is why regulators pay close attention to how these brokers manage conflicts of interest.
• ECN/STP model — the broker routes your order to external liquidity providers (banks, other brokers) and passes through their spread, typically adding a small commission or markup instead of profiting from the spread gap itself.

Marketing materials don’t always make clear which model applies to your account. The distinction is disclosed in the broker’s terms and execution policy, not usually on the pricing page.

Fixed vs variable spreads

• Fixed spreads stay the same regardless of market conditions. They’re more predictable but are typically wider on average than variable spreads during calm markets.
• Variable (floating) spreads move with market liquidity — tight during normal conditions, but they can widen sharply during news releases, low-liquidity hours, or the market open after a weekend.

A spread that looks competitive on a broker’s homepage is usually the minimum or an average under ideal conditions, not a guarantee of what you’ll pay when it matters most.

Why spreads widen at the worst possible time

Spread widening tends to cluster exactly when you’re most likely to be trading actively: major economic releases, central bank announcements, and low-liquidity periods like the few hours after the New York close. A position sized and risk-managed around a broker’s advertised “typical” spread can behave very differently when the spread doubles or triples during a live news event.

How to actually compare spread costs

1. Check the broker’s own spread history or disclosure pages for typical spreads on the pairs you actually trade, not just EUR/USD (which is usually the tightest and most heavily advertised).
2. Look specifically for how the broker describes spread behavior during high-impact news — some disclose typical widening ranges, most don’t.
3. Remember that a slightly wider spread with reliable execution can cost less overall than a headline-tight spread paired with poor fills or frequent requotes.

The practical takeaway

• The spread is a real, guaranteed cost on every trade — factor it into your position sizing and profit targets, not just the market move you’re predicting.
• Understand whether your broker is a market maker or ECN/STP model, since it shapes their financial incentive relative to your trades.
• Expect spreads to widen during news events and thin liquidity — don’t size positions around the tightest spread you’ve ever seen quoted.

This is general educational information, not investment advice. Actual spreads vary by broker, account type, and market conditions — check your specific broker’s current pricing disclosures directly.