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Key Takeaways
- Fixed Spreads stay constant regardless of market conditions—great for predictable costs, especially during news events.
- Floating (Variable) Spreads fluctuate with market liquidity—tighter during calm periods but can widen dramatically during volatility.
- For Beginners: Fixed spreads offer simplicity and protection from unexpected spread spikes.
- For Scalpers: Floating/raw spreads (ECN) are typically cheaper during high-liquidity sessions.
- Best Fixed Spread Brokers: AvaTrade, XM, and HFM offer true fixed spread accounts.
Table of Contents
What Are Spreads in Forex?
The spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair. It represents the primary cost of trading forex, aside from any commissions your broker may charge.
For example, if EUR/USD is quoted at 1.1050 (bid) and 1.1052 (ask), the spread is 2 pips. When you open a buy trade, you start 2 pips in the negative because you bought at the ask and would need to sell at the bid to close.
Why Spreads Matter: For a scalper making 10 trades per day targeting 5 pips each, a 1-pip spread difference between brokers represents a 20% change in profitability. Spreads are critical for short-term traders.
How Fixed Spreads Work
Fixed spreads remain constant regardless of market volatility or liquidity conditions. Whether it's a quiet Asian session or the chaos of an NFP release, the spread on EUR/USD might stay at exactly 1.5 pips.
Fixed spreads are typically offered by Market Maker brokers who act as the counterparty to your trades. Because they control the pricing, they can guarantee a consistent spread.
Advantages of Fixed Spreads
- Predictable Costs: You know exactly what you'll pay on every trade, making it easier to calculate risk and reward.
- News Event Protection: Spreads don't widen during high-impact news like CPI or NFP releases.
- Simpler for Beginners: No need to monitor spread conditions or worry about slippage during volatility.
- Better for EAs: Some Expert Advisors perform better with consistent spread assumptions.
Disadvantages of Fixed Spreads
- Higher Average Cost: Fixed spreads are typically set higher than the average floating spread to account for volatility spikes.
- Potential Requotes: During extreme volatility, Market Makers may issue requotes rather than honor the fixed spread.
- Limited to Certain Brokers: True fixed spread accounts are less common; most brokers offer only variable spreads.
Check our Best Fixed Spread Brokers list for regulated options in this category.
How Floating (Variable) Spreads Work
Floating spreads (also called variable spreads) change constantly based on market supply and demand. During high liquidity periods (London-New York overlap), spreads tighten significantly. During low liquidity (Asian session rollover) or high volatility (news events), they widen.
STP and ECN brokers typically offer floating spreads because they pass orders to liquidity providers who quote real-time market prices.
Advantages of Floating Spreads
- Tighter During Calm Markets: When trading during peak hours, floating spreads can be as low as 0.0-0.3 pips on majors.
- No Conflict of Interest: With STP/ECN execution, the broker profits from volume, not your losses.
- Better for Scalpers: Lower average spreads mean lower trading costs for high-frequency strategies.
- Transparent Pricing: Reflects real interbank market conditions.
Disadvantages of Floating Spreads
- Unpredictable During News: Spreads can spike from 0.5 pips to 10+ pips during major announcements.
- Wider During Off-Peak Hours: Trading during low-liquidity sessions comes at a cost.
- Slippage Risk: Fast markets can cause orders to fill at worse prices than displayed.
Fixed vs Floating: Side-by-Side Comparison
| Factor | Fixed Spread | Floating Spread |
|---|---|---|
| Typical EUR/USD Spread | 1.5-2.0 pips (constant) | 0.0-3.0 pips (varies) |
| During News Events | Stays fixed (or requote) | Widens significantly |
| Low Liquidity Hours | Stays fixed | Wider than usual |
| Peak Hours (London) | Same as always | Tightest possible |
| Best For | Beginners, News Traders | Scalpers, Day Traders |
| Broker Type | Market Maker | STP / ECN |
Which is Better for You?
Choose Fixed Spreads If...
- You are a beginner who values predictability over razor-thin costs.
- You trade during high-impact news events like NFP or CPI releases.
- You use Expert Advisors that require consistent spread assumptions.
- You trade during low-liquidity sessions (Asian session, late Friday).
Choose Floating Spreads If...
- You are a scalper or high-frequency day trader targeting small pip gains.
- You trade primarily during the London-New York overlap when liquidity is highest.
- You avoid trading during news releases and volatile periods.
- You prefer ECN execution with no conflict of interest.
What About Raw Spreads?
Raw spreads are a subset of floating spreads offered by ECN brokers. They represent the pure interbank rate with zero broker markup, often starting at 0.0 pips on EUR/USD. However, the broker charges a separate commission (typically $3-$7 per standard lot round turn) to compensate.
Raw spread accounts are ideal for traders who execute large volumes, as the commission model becomes cheaper than marked-up spreads. See our Best Raw Spread Brokers guide for top options.
Cost Comparison Example: Trading 1 lot EUR/USD. Fixed spread account: 1.5 pips = $15. Raw spread (0.2 pips + $7 commission) = $2 + $7 = $9. Raw spread saves $6 per trade in this example.
Frequently Asked Questions
Is fixed spread better for beginners?
Yes, fixed spreads are often recommended for beginners because they provide predictable trading costs. You won't be surprised by sudden spread widening during volatility, making risk calculations simpler and more reliable.
Do zero spread brokers charge commission?
Yes. Brokers offering 0.0 pip spreads (raw spreads) charge a commission per trade, typically $3-$7 per standard lot. The total cost (spread + commission) is usually lower than fixed spread accounts for high-volume traders.
Which broker has the lowest spread?
ECN brokers like IC Markets, Pepperstone, and FP Markets offer raw spreads from 0.0 pips. See our Best Low Spread Brokers comparison for details.
Why do spreads widen during news?
Spreads widen because liquidity providers (banks) widen their quotes to protect themselves from unpredictable price swings. During high-impact events like NFP or CPI releases, the market can move 50+ pips in seconds, so LPs demand a wider safety buffer.
What is a good spread for EUR/USD?
A "good" spread for EUR/USD is under 1.0 pips on a standard account or under 0.5 pips on a raw spread account. The interbank rate is often around 0.1-0.2 pips during peak hours. Anything above 2.0 pips is considered expensive.
Can I trade news with fixed spreads?
Fixed spread accounts seem ideal for news trading since spreads don't widen. However, some brokers issue requotes or delay execution during extreme volatility, effectively preventing news trading anyway. Check the broker's execution policy.
What is the spread on Gold (XAU/USD)?
Gold spreads are wider than forex pairs due to higher volatility. Fixed spread brokers may offer 30-50 cents ($0.30-$0.50) fixed. Raw spread brokers offer 5-15 cents during peak hours but can spike to $1+ during news. See DailyFX Gold analysis for live pricing.
Are variable spreads cheaper overall?
On average, yes. Variable (floating) spreads are tighter during high-liquidity periods, which accounts for most trading hours. However, if you frequently trade during news or off-peak hours, fixed spreads may be cheaper due to their consistency.
What is spread markup?
Spread markup is the difference between the raw interbank spread and the spread the broker offers you. For example, if the interbank spread is 0.2 pips and your broker quotes 1.0 pips, the markup is 0.8 pips—the broker's profit margin.
How do I check live spreads before trading?
Most trading platforms (MT4, MT5, cTrader) display live spreads in the Market Watch window. Open a demo account to monitor real-time spreads during different trading sessions before committing real money.
Do spreads affect stop-loss execution?
Yes! A widening spread can trigger your stop-loss even if the chart price didn't reach your level. This is because stops are triggered on the bid price (for sell stops) or ask price (for buy stops). See our Risk Management Guide for strategies to handle this.
Which pairs have the tightest spreads?
Major pairs like EUR/USD, USD/JPY, GBP/USD, and USD/CHF have the tightest spreads due to their high liquidity. Exotic pairs (USD/ZAR, USD/TRY) and cross pairs (GBP/NZD) typically have wider spreads. Learn more in our Spreads Guide.
