What is a spread?
The narrow gap between the buying and selling price.
The price to buy a currency and the price to sell it. Between them there is always a narrow gap, and its width changes with place, time and counterparty. So here, we ask you to learn the mechanism, not a number.
In 30 seconds
- In currency exchange and foreign exchange, the buying price and the selling price are shown separately. The difference is the spread.
- The international code of conduct (the FX Global Code) says a mark-up in a price is compensation for risk, cost and service, and should be fair and reasonable.
- The width of the gap changes with market conditions, the counterparty, the nature of the trade and costs. The most accurate figure is the one you check on the spot, at the time you trade.
There are always two prices.
The price to buy a currency and the price to sell it. The difference between them is the spread.
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Two prices
At an exchange counter or in foreign exchange trading, the price at which you buy and the price at which you sell are shown separately. Buying costs more; selling brings less. The difference is called the spread.
Buy and sell straight back, and you are left with less by exactly that difference.
What lies inside the gap.
The gap includes compensation for the side taking on the trade.
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What the code says
Principle 14 of the code of conduct for the global foreign exchange market (the FX Global Code)[2] describes a mark-up that may be included in the price of a trade as compensation for the risk taken on, the costs incurred and the services provided. It says the mark-up should be fair and reasonable.[1]
A different counterparty, a different price.
For similar trades, the price can differ from client to client.
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What should be disclosed
The same code asks that clients be told, in a way they can understand, that the final price may include a mark-up, that prices may differ between clients for similar trades, and the factors that determine the mark-up (such as the nature of the trade, the client relationship and operating costs).[1]
The gap widens and narrows.
Market conditions, demand and costs change the width of the gap.
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Why we do not reduce it to one number
The same code says the price shown to a client should be fair and reasonable in light of market conditions and other factors.[1] World events, each shop’s or firm’s demand and approach, and costs all change the width of the gap.
So this edition does not list specific figures. The number you check on the spot, at the time you trade, is the most accurate and the easiest to understand.
A scale to read before you trade.
A scale for reading the gap.
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Two prices
Whether both the buying and the selling price are shown.
The width right now
What the difference is at this moment. It changes with time and conditions.[1]
Explaining the mark-up
Whether it is explained that the price may include a mark-up, and how it is set.[1]
This is not advice
This edition explains how a spread works. It does not recommend or compare any company or service.
Next question
NEXT QUESTIONA price tag for the night you carry over.NEXT QUESTIONAn envelope grows lighter on its way.See the Field Notes shelf →What this edition cannot tell you
- Specific spread figures by company or currency. They change with conditions, so we deliberately do not list them.
- National laws on how spreads must be displayed.