The truth about trading costs: How spreads really drain your money

Have you ever noticed that when buying and selling the same currency pair on a trading platform, the prices you see are actually different? That invisible price difference is how exchanges and brokers quietly make money from you. This spread is called spread, also known as bid-ask spread.

Spread is the hidden cost of trading

Imagine when you want to buy euros against US dollars, you see two prices:

• Ask Price (ASK): The price you pay, the quote the broker offers you
• Bid Price (BID): The price you can sell at, the quote the broker provides

These two prices will never be the same. The ask price is always higher than the bid price, and the difference between them is the spread. This is the main way “no-commission brokers” make a profit—they don’t charge you explicit fees but earn through the spread.

Simply put, it’s like the broker buying from you at a lower price and selling to you at a higher price, living off this difference. The trading fee isn’t charged separately; it’s embedded directly into the buy and sell prices you see.

Two types of spreads, which one hits you harder

There are mainly two types of spreads on trading platforms, and you need to understand their differences:

Fixed Spread — Looks stable but has hidden pitfalls

A fixed spread remains constant regardless of time or market conditions. This is usually offered by market makers or brokers operating in “dealing desk” mode. They buy large positions from liquidity providers and sell to retail traders, acting as your counterparty.

The advantage is predictable trading costs and usually lower capital requirements. But the pitfalls are significant:

• Quote delays: During sharp market movements, brokers may not react quickly and will directly reject your trades, asking you to accept new prices
• Slippage risk: Prices can change instantly, and your final transaction price may be far from what you expected

Variable Spread — Flexible and transparent but requires quick reflexes

A variable spread changes with market conditions and is provided by non-dealing desk brokers. They get real-time quotes from multiple liquidity providers and pass them directly to you, with no middleman manipulation.

The benefit is no quote delay and high transparency. But the downside is obvious—this type of spread is unfriendly to short-term traders. Especially during economic data releases, holidays, or major global events when liquidity dries up, spreads can widen instantly, quickly eating into your profits.

How to calculate the spread and your actual trading cost

Knowing the spread number alone isn’t enough; you need to calculate the actual cost. This requires two pieces of information:

1. Value per pip
2. Trade volume

For example, with EUR/USD, suppose:

• Buy price: 1.04111
• Sell price: 1.04103
• Spread: 8 pips (or 0.0008)

If you trade 1 mini lot (10,000 units), with each pip worth $1:

Trading cost = 0.8 pips × 1 mini lot × $1/pip = $0.80

If you trade 5 mini lots:

Trading cost = 0.8 pips × 5 mini lots × $1/pip = $4.00

Does that seem small? But don’t forget, this is just your entry cost. You’ll pay again when closing the position. So, the larger your trade volume, the more your costs multiply each time you open a position.

Practical tips for choosing spreads

• If you are a scalper or day trader, fixed spreads, despite the slippage risk, won’t suddenly widen, providing more predictable costs
• If you prefer holding positions and trend trading, variable spreads with lower transparency can be advantageous because you’re less worried about short-term fluctuations
• Be especially cautious during news releases; variable spreads can widen to ridiculous levels, making entering trades at that time equivalent to giving away money

Understanding the true nature of spreads allows you to better control your costs during trading.