Spread

What it means

The CFTC's glossary defines the bid-ask spread as the difference between the bid price and the ask or offer price¹. A trader who buys at the ask and sells straight back at the bid loses the spread, so it is a cost paid on every round trip.

Brokers are paid through the spread, through a separate commission, or both, and account types differ in how they mix the two. An IB rebate comes out of what the broker earns on the client's trading, so rebate rates can differ between spread-based and commission-based accounts. Where a programme lets an IB add a markup, it is usually added to the spread or the commission, and the client pays it. In the United States, NFA's forex guidance requires a forex dealer member or IB that represents its services as commission free to prominently disclose how it is compensated². Check the rules where you and your audience are.

Example

An illustrative quote: EUR/USD at 1.0850 bid and 1.0852 ask has a spread of 0.0002, or two pips. On one standard lot of 100,000 euros, that is $20 of cost to the trader.

Why it matters to an IB

The spread is where an IB's income and a client's cost meet. A markup raises both by the same amount, and "zero commission" does not mean free. An IB who explains costs plainly is easier to trust — see evidence before claims.