A Simple Explanation of Trading Spreads

Understanding Bid-Ask Spreads: Why They Matter for Traders

Every time you place a trade in the financial markets, you're presented with two prices: one for buying and one for selling. This is known as the Bid-Ask spread—and it's a fundamental concept all traders should understand.

You always buy at the higher price (Ask) and sell at the lower price (Bid).

Example:

If Bitcoin is quoted at 91,145 – 91,185, here's what that means:

You can buy at 91,185
You can sell at 91,145
The spread is 40 points (91,185 - 91,145)

The spread represents the cost of entering and exiting a trade. The smaller the spread, the cheaper it is to trade.

Why the Bid-Ask Spread Affects Trading Costs

At ForexFlowAcademy, we emphasize the importance of understanding spread costs when evaluating brokers. The wider the spread, the more expensive it is to trade. Over time, this can significantly impact your profitability.

Comparing Broker Spreads: A Real Cost Breakdown

Not all brokers offer the same pricing. Our research shows that while some brokers keep spreads tight, others charge more—often without offering anything additional in return.

Let’s compare the EUR/JPY spread from two popular brokers:

Broker A: Spread = 2.80
Broker B: Spread = 1.80

This 1.00-point difference may not seem like much at first, but over time, it adds up.

Annual Cost Comparison (Trading 1 Lot per Day, 250 Days a Year)

Broker A: 2.80 × $10 × 250 = $7,000
Broker B: 1.80 × $10 × 250 = $4,500

Total difference: $2,500 per year—for the exact same currency pair.

By choosing a broker with tighter spreads, you could save thousands of dollars annually, especially if you're an active trader.

Key Takeaways

The Bid-Ask spread is the gap between the price you buy and sell at.
Even a small difference in spread can lead to significant cost savings over time.
Always compare brokers not just on features—but also on pricing.
Look for low-spread, regulated brokers that align with your trading goals.

Final Thoughts

Understanding and evaluating Bid-Ask spreads is essential for anyone serious about trading. It’s one of the most direct ways to manage your trading costs and boost long-term profitability.

Before committing to a broker, take time to analyze their spread structure. A slightly tighter spread may seem insignificant at first—but as we’ve shown, it could mean the difference of thousands of dollars a year.

Making informed choices about your broker is just as important as the strategy you use in the market.