What does spread mean?

The term “spread” is an economic anglicism and refers to the price range between ask price and bid price of a currency. The apt German translation is ask price and bid price. The spread refers to the profit and loss margin of the currency trader. Since forex brokers usually waive a commission for the execution of their client orders, they draw their profits from the spreads of the respective orders.

If the investor makes a profit, the broker receives a commission based on the amount of that profit. In the event of a generated loss, the broker comes away empty-handed. The spread is the indispensable slope that must be reached until the investor makes a profit on his investment and earns money.

The spread also helps to determine the liquidity of the respective currency pair or financial instrument. If the spread turns out to be small, the corresponding currency is liquid, while if the spread turns out to be larger, the opposite is a reality. If the spread is small, the traded currency can therefore be classified as very liquid.