Forex spreads explained: How trading costs really work

When you click Buy or Sell on MetaTrader, you’re not trading at a single “mid” price. You’re trading between two prices – the bid and the ask.

The distance between those two prices is called the spread, and it’s one of the main ways your broker charges you for executing trades.

At Lumiex, we treat spreads as a core part of your edge: the lower and more stable they are, the easier it is for your strategy to breathe. To use them to your advantage, you first need to understand how they work.

What is a spread in forex?

Every forex quote has:

• Bid – the price at which you can sell the base currency.

• Ask – the price at which you can buy the base currency.

Spread = Ask – Bid

If EURUSD is quoted as 1.08400 / 1.08402, the spread is 0.2 pips.

The moment you open a trade, you start slightly in the red – that tiny minus is the spread you’ve just paid.

Spreads are not a “hidden fee”; they’re simply built into the prices you see on your platform instead of being added as a separate line item.

Spreads vs commissions

Different account types package costs differently:

• Spread-only accounts

  You pay the trading cost entirely via the spread. These accounts often have slightly wider spreads and no extra commission per trade.

• Raw or low-spread accounts

  You get institutional-style, ultra-tight spreads (often near zero on major pairs) and pay a fixed commission per lot. Active traders who open and close positions frequently tend to prefer this model for its transparency and consistency.

Lumiex offers both approaches so you can pick the structure that matches your style, trade frequency, and average position size.

What influences forex spreads?

Spreads are dynamic. They can widen or tighten throughout the trading day depending on market conditions and the instrument you’re trading.

Key drivers include:

1. Liquidity

   • Major pairs like EURUSD, GBPUSD, USDJPY usually have the tightest spreads because they trade in huge volumes.

   • Exotic pairs or thinly traded crosses tend to have wider spreads.

2. Trading session

   • Spreads typically tighten during high-liquidity sessions (London, New York) and widen during quieter hours (late US / early Asia).

   • Overlaps (e.g., London–New York) often offer the best combination of volume and spreads.

3. Volatility & news

   • Around major economic releases (NFP, CPI, central bank decisions), spreads can temporarily widen as liquidity providers manage risk.

   • Sudden spikes in volatility, flash crashes, or unexpected headlines can cause spreads to jump, even on usually stable pairs.

4. Instrument type

   • FX majors usually lowest.

   • Metals, indices, and crypto CFDs can have different spread behaviors due to underlying market structure and trading hours.

5. Account type & execution model

   • Raw-spread accounts + commissions typically show the tightest spreads.

   • Standard accounts show slightly wider spreads but with no separate commission.

Why spreads matter for your P&L

Spreads affect:

• Your entry & exit quality – Every position starts at a small loss equal to the spread. Tighter spreads mean your trade reaches breakeven faster.

• Scalping & intraday strategies – Short-term trades with small profit targets are extremely sensitive to spread size and stability.

• Overall trading costs – Over hundreds or thousands of trades, even a 0.1–0.2 pip difference can add up significantly.

Example:

If you trade 1 standard lot of EURUSD and the spread is 1 pip, the cost of opening that trade is roughly $10.

If the spread is 0.2 pips, the cost drops to about $2 (plus any commission on a raw account).

Types of spreads you’ll see

1. Floating (variable) spreads

   • Move up and down with market conditions.

   • Tight during liquid periods, wider during news or illiquid sessions.

   • Most modern ECN / STP brokers, including Lumiex, use floating spreads.

2. Fixed spreads

   • Stay constant under normal conditions.

   • Can be attractive for traders who want predictable costs, but are usually set higher than the average floating spread.

3. Raw spreads

   • Reflect near-direct prices from liquidity providers.

   • Can go as low as 0.0 pips on majors at times.

   • A separate commission per lot is charged instead.

How Lumiex approaches spreads

Our goal is simple: institutional-grade pricing with retail-friendly access.

• Deep liquidity – We source prices from multiple top-tier liquidity providers to keep spreads tight and execution robust, especially on metals where Lumiex has a strong focus.

• Transparent structure – Whether you choose a Standard, Raw, or another account configuration, your spread and commission model is clearly defined upfront.

• No artificial widening – Spreads reflect real market conditions; we don’t arbitrarily widen them to “hide” extra costs.

Your trading style determines the best fit:

• Active day-trader / scalper? Consider a Raw account with tight spreads and a fixed commission.

• Swing trader / lower frequency? A Standard spread-only account may feel simpler and more intuitive.

Practical tips for trading smart with spreads

To keep your trading costs under control:

1. Trade during liquid hours

   Focus on London and New York sessions where spreads are generally narrowest.

2. Know your instrument’s typical spread

   Before trading a pair or CFD, check its average spread on your account type and factor that into your target and stop-loss distance.

3. Be cautious around news

   If you don’t have a news-specific strategy, consider avoiding opening new positions immediately before high-impact economic releases.

4. Align your strategy with costs

   If your average profit target is 5 pips but the spread is 2 pips, your strategy has to work much harder. Either increase your targets or focus on instruments with tighter spreads.

5. Monitor real trading costs over time

   Review your account history periodically. Total commissions + spread impact vs total profit will show whether your current setup is efficient.