Forex Spreads and Pips: What They Cost You

What Is a Pip?

A pip — short for "percentage in point" — is the standard unit of price movement in forex. For most currency pairs it is the fourth decimal place. If EUR/USD moves from 1.0850 to 1.0851, that is a one-pip move. For pairs that include the Japanese yen, a pip is the second decimal place, so a move from 150.20 to 150.21 in USD/JPY is one pip.

Many brokers also quote a fractional pip, or pipette, shown as a fifth decimal (or third for JPY pairs). Pips are how traders measure profit, loss, risk and cost, so getting comfortable with them is essential.

What Is the Spread?

Every pair has two prices: the bid (what you can sell at) and the ask (what you can buy at). The spread is the difference between them, measured in pips, and it is one of the main costs of trading. When you open a position, you start slightly in the red by the size of the spread — the market must move in your favour by at least that much before you break even.

Spreads can be fixed or variable. Variable (floating) spreads widen and narrow with market conditions: they are tightest when liquidity is high and widen during news or thin sessions.

What the Spread Actually Costs

The monetary cost of a spread depends on your position size. On a standard lot (100,000 units), one pip is worth about USD 10 on a dollar-quoted pair, so a one-pip spread costs roughly USD 10 to enter that trade. On a mini lot (10,000 units) it is about USD 1 per pip. Multiply the spread in pips by your pip value and you have your entry cost.

This is why active traders care so much about spreads. If you place many trades a day, a fraction of a pip difference compounds into a meaningful sum over a month. For a long-term position trader, the spread matters far less than the overnight financing.

What Moves Spreads

• Liquidity: major pairs like EUR/USD typically have the tightest spreads; exotic pairs are much wider.
• Session: spreads are usually tightest during the busy London–New York overlap and wider in quiet hours — see our forex trading sessions guide.
• News: spreads can widen sharply around high-impact releases on the economic calendar.

It helps to set the spread against how far a pair normally moves. TradingView, the browser-based charting platform, has free average daily range scripts in our Pine Script Library that plot that range on a chart.

How to Compare Brokers Fairly

Spread is only part of the total cost. To compare brokers honestly, look at the whole picture:

• The typical spread on the pairs you actually trade — not just the advertised best case.
• Any separate commission, common on raw-spread accounts.
• Swap or overnight financing if you hold positions.
• Reliability and regulation — a slightly tighter spread means little if execution is poor.

If an introducer offers to return part of the spread, forex rebates and cashback explained shows what that is worth and what it is not.

Add spread and commission together to get your true round-turn cost, and always test on a demo before committing real money. You can watch live bid, ask and spread on major pairs like the EUR/USD live rate on the free ForexR dashboard, and see for yourself how spreads shift through the day. When you want to check execution and typical spreads in practice, you can open a KCM Trade demo account. As with all leveraged products, forex and CFD trading carries a high risk of loss.