Understanding spreads in forex – An in-depth look at brokers’ fees

If you’re wondering what is a spread in forex then you’re not alone. It is probably one of the first questions any trader asks when interested in trading contracts for difference. Spreads are fees which you pay to your broker to be able to buy and sell. This is how a lot of brokers make money. The size of a spread can affect your earnings significantly. To be able to plan ahead, the stability of a spread is important.

This article answers the question ‘What is a spread in forex?’ both simply and in detail. It explains the potential impact of spreads on traders’ earnings and looks at the various types of spreads available. Learn what options are available on various account types and how they work for you, depending on your strategy and approach to trading.

What is a spread?

A spread is the price difference between the buy and sell price of an instrument. It’s the fee that a broker like Exness charges for providing its services to those wanting to trade forex. Essentially, spreads are the key costs involved for covering your broker's expenses such as staff salaries, maintaining servers and platforms, and developing new services.

How spreads work

Spreads work in practice by splitting the market price of an instrument into two prices in the trading platform. These two prices are called ‘ask’ and ‘bid’. You buy at the ask price – which is always higher – and you close your buying trades at the bid price. When you sell, the opposite is true. You open at the bid and you close at the ask. This is why you always see a small loss as soon as you open a trade.

Exness’ spreads, a difference between two prices, typically range from about 0.005% to 0.01% of a contract’s nominal value. This can change based on what you’re trading, news, and the time of day. If you’re a trader focusing on short-term trading, you might aim to trade instruments with the lowest possible spreads.

Where to find spreads

The most reliable way to find the current bid-ask spread for an instrument is to check the relevant chart on MT5 or Exness’ platform. You can find spreads both on the individual chart of an instrument and in Market Watch on MT5 or the ‘plus’ menu on Exness’ web platform.

You can also find average spreads on Exness’ website under the information about instruments. This page tells you how much the average spread was recently for major currency pairs.

Remember that the spreads quoted on the website are not the same as the live spreads you see on a trading platform. The spreads on the site are the average of the previous day, when the market was open.

Why spreads are important

Having a lower or tighter spread is important because it means that you can save money. If you pay less to trade, your total earnings will be higher or your total losses lower.

Equally, it’s important to have a consistent, or ‘stable’ spread because that makes it easier to plan ahead. If you have a reliable understanding of the spreads you’ll need to pay, you can backtest and conduct walk-forward tests, and be more confident that the results are accurate.

If you’re new to trading, it’s also important to have reasonably consistent and stable spreads during periods where certain news could affect the market. Given the forex market volatility and activity in markets around the most important news like the US job report (also known as non-farm payrolls or ‘the NFP’ for short), it’s impossible to have a truly fixed spread at such times. But some brokers or market makers like Exness are leaders in maintaining consistency.

Your options for spreads and the alternative, commissions

What is a spread in trading? Spreads are the ‘default’ way to pay to trade for the majority of traders. However, many brokers, including Exness, give you flexibility to choose how you want to pay for the service they provide for you.

If you prefer scalping or using some types of short-term algorithms, you might not find spread-based pricing convenient. That’s why Exness introduced Zero and Raw Spread accounts to give you more options.

Spread-based accounts

Several of the accounts available at Exness have spreads as the model for pricing. Some are categorized as standard accounts and others are professional accounts.

Standard and Pro accounts differ mainly in execution. The Standard account uses market execution exclusively, while the Pro account uses instant execution for almost all instruments, except for cryptocurrencies.

The Pro account also offers the lowest spreads available from Exness without commissions.

For the majority of traders, a Pro account offers the lowest costs to trade. Spreads for Pro accounts are on average higher than for Zero accounts, but there are no commissions. If you want to use any time-based strategy, except scalping and focussed daytrading, and you’re prepared to make a minimum deposit of $200, a Pro account might be for you. However, if you don’t want to deposit that much, you can still trade on a Standard account.

Zero accounts

Exness also offers the option of a Zero account, one of its professional accounts that features commissions. With a Zero account generally, various instruments have no spreads.

If you’re a scalper or algorithmic trader, a Zero account might be a good choice. You can plan very short-term and high-frequency trades with this account, that can be more effective because the commissions are fixed for all instruments. Any change to commissions is announced in advance.

Please remember that Zero accounts don’t have zero spreads for every instrument all the time. Exness offers consistent zero spread for the top 30 instruments. In fact, some extremely rare exotics such as Australian dollar-Danish krone (AUDDKK) and relatively less traded individual shares such as Broadcom (AVGO) will almost always have some spread in addition to the commission.

Raw Spread accounts

If you want to use a variety of strategies to trade, a Raw Spread account might suit you. This professional account works with a combination of spreads and commissions.

What is a spread in trading a currency pair with the Raw Spread account specifically? Spreads here are higher than the Zero account’s but lower than for the Standard or Pro account. The commission is higher than the Standard or Pro account (which don’t have commissions) but lower than the Zero account.

The main potential advantage of using a Raw Spread account is that it gives you flexibility to adapt your strategy according to the circumstances in the financial markets. If your usual strategy or algorithmic trading isn’t working, for example, you can shift temporarily to daytrading, swing trading or position trading — then return to your algorithm later, without needing to switch accounts to minimize costs.

Does Exness want to make money from clients’ losses?

No. Around 90% of Exness’ profits come from spreads. The rest mainly comes from commissions from Zero and Raw Spread accounts. A small amount also comes from swaps, which are overnight fees applicable to some instruments.

At Exness we value transparency and it’s central to our success. We firmly believe that acting in the best interests of our clients is also in our best interest as a business.

This is why we were one of the first brokers to publish our audited financial data. You can check Exness’ financial audits on our website, to see what our clients collectively withdraw on average every quarter. We don’t want you to lose money in trading because we make money from spreads.