Glossary
Spread
The spread is the difference between the price at which a market can be sold, the bid, and the price at which it can be bought, the ask.
What it means
Every trade opens at a small loss equal to the spread, so it is one of the costs of trading, along with commission. Spreads are measured in pips on forex and in points or ticks elsewhere. They are tight on liquid markets during active hours, and they widen at the daily rollover, around the weekly open and around major news releases.
Prop firm spreads come from the platform and price feed the firm uses. Some accounts offer raw spreads with a commission per lot, others a wider spread with no commission. Traders should check typical spreads on the instruments they trade, since a wide spread at the wrong moment moves equity toward a loss limit.
Worked example
Illustrative numbers: EUR/USD is quoted at 1.10000 bid and 1.10008 ask, a spread of 0.8 pips. A trader who buys 5 lots starts the trade down 0.8 pips at $50 a pip, or $40. If the spread widens to 3 pips around a news release, the same trade starts $150 down.
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