Bid-Ask Spread
The gap between the price to buy and to sell a currency — the dealer’s markup.
Formula
Live Calculator
MembersVariables
Example
Ask 1.1005, Bid 1.1000: spread = 5 pips
How it works
The bid-ask spread is the built-in difference between the price a market maker charges to buy a currency from you and the price it pays to sell that currency to you. It exists because dealers need to cover transaction costs and make a profit, so the spread represents the immediate cost of trading. A wider spread usually means lower liquidity or higher risk, while a narrower spread usually means a more active market.
When to use it
Use this formula when comparing FX quotes, estimating trading costs, or checking how much a trade must move in your favor before you break even. It is especially useful in forex trading, currency conversion, and dealing with broker quotes that show separate bid and ask prices.
Worked example, step by step
Step 1: Identify the ask and bid prices. Ask = 1.2568 Bid = 1.2562 Step 2: Subtract the bid from the ask. Spread = Ask - Bid Spread = 1.2568 - 1.2562 Step 3: Calculate the difference. Spread = 0.0006 Step 4: Interpret the result in pips. 0.0006 in a pair quoted to four decimal places = 6 pips Final answer: The bid-ask spread is 0.0006, or 6 pips.
Common mistakes to avoid
- Reversing the subtraction and getting a negative spread
- Confusing the spread with the full exchange rate instead of the difference between ask and bid
- Forgetting to convert the decimal difference into pips when required
Did You Know?
Major pairs like EUR/USD trade at spreads of a fraction of a pip, while exotic pairs can cost many times more.
Share this formula
More in Currency & Forex
View allCurrency Conversion
BasicConvert an amount from one currency to another using the quoted exchange rate.
Inverse Exchange Rate
BasicFlip a quoted rate to express it from the other currency’s point of view.
Currency % Change
BasicThe percentage move in an exchange rate between two points in time.
Cross Rate
IntermediateDerive the exchange rate between two currencies via a common third currency.
Spread Percentage
IntermediateThe bid-ask spread expressed as a percentage of the ask price.
Pip Value
IntermediateThe monetary value of a one-pip move for a given trade size.