Spreads in Forex: How to Calculate Them and Optimize Your Trading Operations

The spread point is the backbone of any operation in the currency markets. Understanding its direct impact on profitability is what separates traders who effectively manage risks from those whose gains evaporate due to lack of knowledge. In this analysis, we will delve into how spreads work, what factors influence them, and what is the best strategy to minimize their impact on your trading account.

The Mechanics of the Spread: Bid, Ask, and the True Cost of Trading

A spread is nothing more than the gap between the price at which you can sell an asset (Bid) and the price at which you can buy it (Ask). This difference represents the only cost we assume when trading on online platforms, replacing traditional commissions charged by conventional financial intermediaries.

Why do brokers operate this way? The answer is simple: spreads are a form of implicit charge integrated directly into each trade. When you click to open a position, that cost is already included. There are no surprises later with deposit or withdrawal fees if you choose a transparent broker.

In the market, we distinguish two main categories:

Variable Spreads: Fluctuate constantly according to real-time market conditions. This allows providers to dynamically adjust to volatility and offer better prices during calm periods. Most CFD platforms apply this model.

Fixed Spreads: Maintain their value consistently, although in extreme volatility scenarios they can widen significantly. They offer predictability but less flexibility.

Calculating Your Spread: A Basic Operation with Crucial Results

The calculation is straightforward: subtract the Bid price from the Ask price. Let’s look at a practical example with the EUR/USD pair:

If the Bid price is 1.05643 and the Ask is 1.05656, the spread will be: 1.05656 – 1.05643 = 0.00013

In terms of pips (the minimum movement unit in forex), this equals 1.3 pips. This seemingly insignificant number is multiplied by each lot you trade. With 100 lots, you would be paying 130 pips just to open the position.

When trading stocks via CFD, the calculation is expressed in ticks (the minimum quotation unit). For example, if Microsoft has a Bid of $329.61 and an Ask of $330.33, the spread will be: 330.33 – 329.61 = 0.72 dollars or 72 ticks

The Four Pillars That Determine the Spread Range

Volatility: The Dominant Factor

When an asset experiences significant price fluctuations, spreads widen. Cryptocurrencies and individual stocks typically show much wider spreads than major currency pairs. Conversely, calm markets with minimal changes maintain tight spreads.

Market Depth and Volume

Assets with very high daily trading volume generate narrower spreads. Take Apple or Amazon as examples: with hundreds of millions in daily transactions, their spreads are minimal. Compare this to less liquid stocks where spreads can be exponentially larger. In forex, EUR/USD (the most liquid pair) has much lower spreads than exotic pairs like NZD/CAD.

Geopolitical and Economic Impact Events

Relevant news temporarily trigger wider spreads. The Russian invasion of Ukraine multiplied the spreads of pairs involving the ruble. Conflicts in oil-producing regions expand the gaps in crude oil and related pairs. These movements are hard to predict but trend-aware.

Specific Asset Particularities

Each instrument has its own nature. Commodities show wider spreads than major currencies. Indices vary depending on the economic stability of the underlying country.

Platform Comparison: Spreads in Practice

Here are four notable options for their competitiveness:

MyTrade – The Transparent Model
With 2.4 million clients, this Australian platform mainly operates in the Asia-Pacific region. Its strength lies in simplicity: only floating spreads, no hidden deposit or withdrawal fees.

• Regulation: ASIC, CIMA, FSC
• Assets: +200
• Max leverage: 1:200
• Spreads: Highly competitive
• Available: Own MT4/MT5
• Key advantage: Cost clarity, negative balance protection
• Limitation: No support for traditional MetaTrader

CMC Markets – The Institutional Veteran

Listed on the stock exchange and originating from London, offers over 10,000 assets. Focused on professional clients, with multiple regulations (FCA, CNMV, ASIC).

• Regulation: FCA, CNMV, ASIC
• Assets: +10,000
• Leverage: 1:30 (conservative)
• Spreads: Market-aligned
• Analysts: Top-tier market analysis
• Disadvantage: Complex registration process, limited leverage

XM – The Asian Powerhouse

Active in Europe, America, and Asia, stands out for offering leverage up to 1:888 (sujeto a regulaciones regionales). Has over 1,000 assets and an excellent educational section.

• Regulation: FCA, ASIC, CySEC
• Spreads: From 0.01 pips
• Leverage: Up to 1:888
• Tools: MetaTrader 4 and 5
• Strength: Strong presence in Asia, negative balance protection
• Negative point: Inactivity fee of $15

AvaTrade – Algorithmic Innovation

Founded in Ireland in 2006, pioneer in automated trading tools (DupliTrade, ZuluTrade). Includes MT4/MT5 out of the box.

• Regulation: FCA, CySEC, ASIC
• Spreads: 0.1 to 25 pips depending on asset
• Leverage: 1:200
• Tools: Native MT4, MT5
• Innovation: Integrated algorithmic trading
• Restriction: Demo limited to 30 days, fees on small withdrawals

Direct Impact on Your Profitability: What You Need to Know

A spread of 2 pips in 100 trades per month represents 200 pips of pure cost. If you trade 1 lot per trade, that would be $200 in implicit commissions. With 5-pip spreads, the cost would quintuple. That’s why broker selection is critical.

Don’t look for just low spreads in isolation. Some brokers boast minimal spreads but apply hidden fees on withdrawals, currency conversions, or maintenance. Calculate the total combined cost: spreads + all possible fees.

Specialized Strategies with Spreads (Using Options)

Pure spread trading strategies work exclusively with financial options, not with regular CFDs.

Vertical Spread: Buying/selling Call or Put options with the same expiration but different strikes. Limits both gains and losses.

Horizontal Spread: Same strike, different expiration dates. Exploits time decay.

Diagonal Spread: Varies both strikes and expiration dates. Combines features of both strategies.

Final Summary

Spreads are unavoidable in derivatives trading but manageable. Your competitive advantage lies in choosing a platform where costs are transparent and tight. MyTrade exemplifies this model: quality service, low spreads, and a Fintech architecture that reduces operational costs compared to traditional brokers.

Optimizing spreads not only improves immediate results but also reduces the psychological pressure of seeing “money lost” before your trading thesis even begins to execute. Every pip saved is direct profitability.