Spreads in currency pairs refer to the difference between the bid price and the ask price of a currency pair in the Forex market. The spread is typically quoted in pips (You will learn about pips right next). It is essentially the cost that traders incur when executing a trade. The spread exists because Forex brokers need to make a profit, and it serves as their compensation for facilitating trades.

As your know Currency pairs are quoted in two prices: the bid price and the ask price. The bid price is lower than the ask price, and the difference between them is the spread. For instance, if the bid price for the GBP/USD currency pair is 1.3089 and the asking price is 1.3091, the spread would be 2 pips.

Spreads can be categorized into two types: fixed spreads and variable spreads. Fixed spreads remain constant regardless of market conditions. On the other hand, variable spreads fluctuate depending on market volatility and liquidity. Variable spreads tend to widen during periods of high market volatility or low liquidity.

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The bid price in a currency pair represents the highest price that a buyer is willing to pay for the base currency It is the price at which market participants are eager to buy the base currency. Traders who want to sell the base currency will receive the bid price if their sell order is executed.

The asking price, also known as the offer price, is the lowest price at which a seller is willing to sell the base currency in exchange for the quoted currency. It is the price at which market participants are eager to sell the base currency. Traders who want to buy the base currency will need to pay the asking price if their buy order is executed.

For example, let’s consider the currency pair GBP/USD. If the current quote for GBP/USD is 1.2041/1.2042, it means that the bid price is 1.2041, and the ask price is 1.2042. If you want to buy GBP (base currency) and sell USD (quote currency), you will need to pay the asking price of 1.2042. On the other hand, if you want to sell euros and buy US dollars, you will receive a bid price of 1.2041.

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