Spread: the hidden cost of every trade

The spread is the difference between the highest price someone is willing to pay (bid, the buy offer) and the lowest price at which someone wants to sell (ask, the sell offer): spread = ask − bid. For liquid pairs it is very tight, for less popular ones it is wide. A market order buys at the ask price and sells at the bid price, so you pay the spread on every trade.

It is a hidden cost, on top of commission fees, and it is often underestimated, especially with frequent short-term trading. The spread widens when liquidity is low and during sharp moves, when the offers in the order book thin out. It is worth distinguishing it from other “spreads” in finance, such as the price difference of the same asset across different markets.