How Spreads Eat Your Forex Profits

You make a perfect trade. Entry is perfect. Exit is perfect. You should make 50 pips.

You only make 47 pips.

3 pips disappeared. Where? Spreads.

Most traders don’t track this. They make 100 trades. They lose 200 pips (2 pips per trade) to spreads. That’s $20 on micro lots. Doesn’t sound like much until you realize: That 2% cost is the difference between breakeven and profitability.

A trader with a 51% win rate and 1:1 R:R is breakeven before spreads. With spreads, they’re -2% for the month. With one month of bad luck, they’re down 5%. Three months later, account is down 15%.

Spreads kill more traders than bad strategy.

What Is a Spread?

A spread is the gap between the bid price (what you sell at) and the ask price (what you buy at).

Example:

EURUSD shows:

Bid: 1.0950 (sell price)
Ask: 1.0952 (buy price)

You want to buy EURUSD. You must pay the ask: 1.0952.

You want to sell EURUSD. You get the bid: 1.0950.

The spread = Ask - Bid = 1.0952 - 1.0950 = 2 pips.

The 2 pips is the cost you pay to enter the market. You buy at 1.0952 and would need to sell at 1.0952 just to break even. But the bid is 1.0950. So you lose 2 pips immediately.

How Spreads Cost You

Let’s say you:

Account: $10K
Lot size: 1 micro lot per trade
100 trades per month
Average spread: 2 pips per trade

Cost:

Per-pip value on micro lot = $0.10
Cost per trade = 2 pips × $0.10 = $0.20
Monthly cost = 100 trades × $0.20 = $20

$20 per month on a $10K account = 0.2% cost.

Over a year, that’s 2.4% of your account just in spreads.

If your expected yearly return is 24% (2% per month), spreads reduce it to 21.6%. That’s a 10% hit to your profitability.

Bigger picture:

If you trade 1 standard lot per trade instead:

Per-pip value = $10
Cost per trade = 2 pips × $10 = $20
Monthly cost = 100 trades × $20 = $2,000
Yearly cost = $24,000

On a $100K account, that’s 24% of your account just in spreads. Your expected 24% return becomes 0% after spreads.

This is why position sizing matters.

Types of Spreads: Fixed vs Variable

Fixed Spreads

Market maker brokers offer fixed spreads. EURUSD is always 2 pips, for example.

Pros: Predictable. You know your cost upfront.

Cons: Fixed spreads widen during news. A “fixed 2 pips” becomes 5 pips during big news. If you’re slipped, it’s not reimbursed.

Variable (Floating) Spreads

ECN and STP brokers offer variable spreads. Spreads change based on liquidity.

During London peak: EURUSD 0.5-1.5 pips
During Asia low-volume: EURUSD 1.5-3 pips
During news spike: EURUSD 5-10 pips

Pros: Lower average spread. You pay less on average.

Cons: Unpredictable. You don’t know your cost until you enter.

Spread Costs by Pair and Broker Type

Pair	Market Maker (Fixed)	ECN (Variable Avg)
EURUSD	2-3 pips	0.5-2 pips
GBPUSD	3-4 pips	1-2.5 pips
USDJPY	2-3 pips	0.5-1.5 pips
Exotic (USDZAR)	10-20 pips	2-5 pips

Bottom line: ECN brokers are 50-70% cheaper on spreads than market makers.

How Spreads Impact Your Strategy

Tight Spreads Help Scalpers

If you’re scalping 5-10 pips per trade, spreads (2 pips per entry) are a huge cost. A 5-pip scalp becomes a 3-pip net profit after spread.

You need:

Tight spreads: 0.5-1 pips or less
ECN broker, not market maker
Trade during peak liquidity (London, NY overlap)

Wide Spreads Kill Tight Stops

If you use 15-20 pip stops, spreads matter less. A 2-pip spread is 10-13% of your stop. Painful but manageable.

If you use 5-8 pip stops, spreads are 25-40% of your stop. Your risk is understated. You’re risking more than you think.

When Spreads Blow Up

High-Impact News (FOMC, Jobs, CPI)

During major US economic data releases, spreads can triple or quadruple.

Normal EURUSD spread: 1.5 pips
News spike: 5-10 pips

If you enter just before the number, your entry might slip 3-4 pips worse than you expected. A 50-pip target becomes a 53-56 pip target. You need bigger winners to compensate.

Low-Liquidity Pairs

Exotic pairs (USDZAR, USDMXN, etc.) have massive spreads 10-30 pips normally.

If you’re trading these, spreads cost you 10-20% of your R:R per trade.

Weekend Gaps

Markets close Friday at 5 PM EST. They reopen Sunday at 5 PM EST. On the reopen, spreads can be 2-3x normal for 30 minutes as liquidity dries up.

If you hold trades over the weekend, expect wide spreads on Monday reopen.

How to Minimize Spread Costs

1. Use an ECN Broker

ECN brokers pass spreads directly from the market. They make money on commission, not spread markups.

Examples: Interactive Brokers, Pepperstone, Axiory, FXCM

Savings: 50-70% lower spreads than market makers

2. Trade During Peak Liquidity

Spreads are tightest when volume is highest:

London open: 08:00 UTC - EURUSD spreads tighten to 0.5-1 pip
NY open: 13:00 UTC - USD pairs tighten to 0.5-1 pip
London-NY overlap: 13:00-16:00 UTC - Tightest of the day

If you’re trading from Asia (Tokyo hours), spreads are 2-3x wider. Your cost is higher.

Savings: 1-2 pips per trade by trading during liquid sessions

3. Avoid News Spikes

Don’t enter trades 5 minutes before high-impact news. You’ll get slipped on entry. Exit trades before news if you can’t handle the volatility.

Savings: 2-5 pips per trade by avoiding news spreads

4. Accept Wider Spreads on Exotics (Or Avoid Them)

If you want to trade USDZAR, accept the 10-15 pip spread. Or stick to majors where spreads are reasonable.

Savings: Only trade pairs where your spread is less than 25% of your stop loss

5. Size Appropriately

Don’t scalp on tight margins with wide spreads. If spreads are 3 pips and you’re targeting 5-pip wins, you’re trying to make 2 pips. Spreads will kill you.

Either:

Trade tighter spreads (ECN, liquid sessions, major pairs)
Target bigger wins (10+ pips instead of 5)
Stop scalping and trade longer timeframes

Calculating Your True Profitability

You made 100 trades. Win rate: 55%. Average win: 50 pips. Average loss: 50 pips.

Theoretical P&L:

Wins: 55 × 50 pips = 2,750 pips
Losses: 45 × 50 pips = -2,250 pips
Net: +500 pips = $50 on micro lots

Real P&L (with spreads):

Entry spreads cost: 100 trades × 2 pips = -200 pips
Net: +500 pips - 200 pips = +300 pips = $30 on micro lots

Impact: You lost 40% of your profit to spreads. Your 500-pip edge became 300-pip edge.

This is why many traders think they’re profitable but aren’t. They didn’t account for spread drag.

Spread Tracking

Track your average spread per trade:

Trade	Pair	Entry Spread	Actual Spread Paid	Difference
1	EURUSD	1.5	2.0	+0.5 (slippage)
2	EURUSD	1.5	1.5	0
3	GBPUSD	2.0	3.5	+1.5 (news)

Over 100 trades, you’ll see your true average spread. Most traders find it’s 0.5 pips higher than expected (slippage).

The Bottom Line

Spreads are invisible. You don’t see them as a line item on your P&L. But they’re there, eating 1-5% of your profits every month.

Control what you can control:

Use ECN brokers (lower spreads)
Trade major pairs (tight spreads)
Trade during liquid sessions (tight spreads)
Size appropriately (target wins larger than spread costs)
Avoid news spikes (reduce slippage)

A 1-pip reduction in average spread costs = $10-100 per month savings, depending on your lot size. Over a year, that’s $120-1,200.

For full-time traders, that difference is real money. For part-time traders, it’s the margin between profit and loss.

Track your spread costs in your trading journal. You’ll see which pairs and sessions drain you most.