Understanding & Calculating Forex Spreads: A Beginner's Guide

The Forex spread is something that you will need to be familiar with if you plan on getting involved in the Forex market. Here are the basic steps involved in how to calculate the Forex spread.

The Spread

This term refers to be bid/ask spread when trading currencies. The amount of the spread is important because it comes out of the profit of every trade. This is how the Forex brokers are compensated. Ideally, you would like to find a broker that has the lowest spreads around. This way, you will be able to increase your profit from trading.

Calculations

If you are placing a trade, you are going to subtract the bid price from the ask price. Whenever you look at your Forex trading platform, you are going to see two different prices next to each currency pair.

For example, let's say that you look at your trading platform and you see a currency pair that has 1.3423/1.3426 next to it. In order to calculate the Forex spread of this particular pair at this moment, you would subtract 1.3423 from 1.3426. This would mean that the spread for this pair is three pips. Keep in mind that the spread will change regularly with most brokers.