In plain English
What Bid–ask spread means
A quote of 1.0850/1.0852 has a spread of 0.0002, or 2 pips if the pair is quoted to four decimal places. Spreads tend to widen when liquidity is thinner or volatility is higher, and they often narrow in highly liquid market conditions.
Why it matters
The spread affects the cost of every entry and exit. For frequent traders, small differences in spread can matter more than a one-time commission. It also gives a quick signal about liquidity and market conditions, though it is not the only cost to consider.
Example
Simplified example: EUR/USD quoted at 1.0850/1.0852 has a 2-pip spread. If you buy and immediately sell one standard lot, you start 2 pips behind before commission and any price movement. If the spread widens to 5 pips, that initial cost is larger.
Quick answers
Common questions
Is a tighter spread always better?+
Usually, yes, because it reduces the gap you must overcome to break even. But it should be considered alongside execution quality and other fees.
Does the spread measure volatility?+
Not directly. Wider spreads often appear in more volatile or less liquid conditions, but the spread itself is a quoted cost, not a pure volatility statistic.
Sources