Forex Spread Explained (South Africa 2026 Guide)
Last Updated: July 2026
Understanding Forex Spreads Could Save You Hundreds of Rand
One of the first costs every forex trader encounters is the spread. Although it may only be a few pips wide, the spread is effectively the price you pay every time you open a trade. Understanding how spreads work can help you choose a better broker, reduce unnecessary trading costs and improve your long-term profitability.
Many beginners focus entirely on finding the “lowest spread” without understanding why spreads change throughout the trading day. Market liquidity, volatility, major news events and your broker’s pricing model all influence how wide or narrow the spread becomes. Learning these factors will help you avoid entering trades when trading costs are unnecessarily high.
As a retired forex trader with more than eight years of live trading experience, I’ve learned that successful traders don’t simply chase the lowest spread. They understand when spreads widen, how they affect risk management, and why broker regulation and execution quality are often more important than saving a fraction of a pip. In this guide, you’ll learn exactly what forex spreads are, how they’re calculated, and how South African traders can reduce their trading costs in 2026.
Brian Rosemorgan
Retired Professional Trader | 8+ Years Experience | South Africa
Questions?
Quick Navigation
AI Overview
A forex spread is the difference between the buy (ask) price and the sell (bid) price of a currency pair. The spread represents one of the primary costs of trading and is how many brokers earn revenue without charging a separate commission.
Spreads are influenced by market liquidity, trading volume, volatility, broker pricing models and the currency pair being traded. Major pairs such as EUR/USD typically have tighter spreads than exotic currency pairs because they are traded more frequently.
For South African traders, understanding spreads is essential when comparing brokers and managing trading costs. While lower spreads can reduce expenses, choosing a well-regulated broker with reliable execution and transparent pricing is usually more important than selecting a broker based solely on the smallest advertised spread.
1. What Is a Forex Spread?
A forex spread is the difference between the bid price (the price at which you can sell) and the ask price (the price at which you can buy) of a currency pair. This difference is measured in pips and represents one of the main costs of trading forex.
Every time you open a trade, you start with a small unrealised loss equal to the spread. Your trade must first recover this cost before it begins making a profit. Although the spread may appear small, frequent trading can cause these costs to accumulate over time.
For example, if EUR/USD has a bid price of 1.12500 and an ask price of 1.12510, the spread is 1 pip. If you buy at 1.12510, the market must rise by at least one pip before you break even.
Key Takeaway
The spread is your entry cost. Every forex trade begins by paying the spread, making it one of the most important costs every trader should understand before placing a trade.
2. How Forex Spreads Are Calculated
The spread is simply calculated by subtracting the bid price from the ask price.
| Price | Value |
|---|---|
| Bid Price | 1.12500 |
| Ask Price | 1.12510 |
| Spread | 1 Pip |
Most modern trading platforms calculate the spread automatically, so you never need to perform the calculation yourself. However, understanding how it works helps you compare brokers and estimate the true cost of each trade.
Spreads are usually measured in pips, although some brokers quote prices using fractional pips for greater pricing precision.
3. A Real-World Example
Imagine two South African traders each open exactly the same EUR/USD trade.
Trader A uses a broker with a spread of 0.8 pips, while Trader B uses another broker charging 2.5 pips.
Although both traders make identical trading decisions, Trader B pays considerably more every time a position is opened. After dozens or even hundreds of trades, those additional spread costs can significantly reduce overall profitability.
This is one reason experienced traders compare total trading costs rather than focusing only on leverage or promotional bonuses.
Professional Insight
During my trading career, I learned that spreads matter—but only when viewed alongside execution quality, regulation and reliability. A broker advertising ultra-low spreads isn’t necessarily the cheapest if trades suffer from slippage, delayed execution or hidden commissions. I would rather pay a slightly wider spread to trade with a broker I trust.
4. Fixed vs Variable Forex Spreads
Not all forex brokers price their spreads in the same way. Some offer fixed spreads, while others provide variable (floating) spreads. Understanding the difference can help you choose the type of pricing that best suits your trading style.
Fixed spreads generally remain the same under normal market conditions, making trading costs more predictable. Variable spreads change throughout the trading day based on market liquidity and volatility. During busy trading sessions they may become very tight, but they can widen significantly during major news events or periods of low liquidity.
| Feature | Fixed Spread | Variable Spread |
|---|---|---|
| Cost | Usually predictable | Changes with market conditions |
| Best For | Beginners and budgeting | Active traders seeking lower average spreads |
| News Events | Often remains stable* | Can widen sharply |
| Transparency | Easy to understand | Reflects real market liquidity |
*Some brokers reserve the right to widen even fixed spreads during exceptional market conditions.
5. Why Forex Spreads Become Wider
Many beginners are surprised when spreads suddenly increase. In reality, wider spreads are usually a normal response to changing market conditions rather than a sign that something is wrong with your broker.
Liquidity providers adjust pricing according to supply and demand. When fewer buyers and sellers are active—or when uncertainty increases—the difference between the bid and ask price naturally becomes larger.
Common Reasons Spreads Widen
✓ Major Economic News
High-impact announcements such as interest rate decisions, inflation reports and employment data often increase market uncertainty.
✓ Low Liquidity
During quiet trading periods, weekends or market holidays there are fewer participants, leading to wider spreads.
✓ Market Volatility
Rapid price movements increase risk for liquidity providers, who may widen spreads to compensate.
✓ Exotic Currency Pairs
Less frequently traded currency pairs usually have wider spreads than major pairs such as EUR/USD or GBP/USD.
Brian’s Pro Tip:
One lesson I learned early in my trading career was to avoid opening trades immediately before major economic news releases. Even if your trading strategy is good, a sudden spike in spreads can trigger stop losses or make entering a position far more expensive than expected.
Patience often saves more money than chasing every trading opportunity.
Understanding Spreads Helps You Trade Smarter
Knowing why spreads change is only part of the picture. The next step is learning how to minimise spread costs and avoid the common mistakes that cause many beginners to pay more than necessary.
“`
6. How to Reduce Forex Spread Costs
Although you cannot avoid paying the spread altogether, you can take several practical steps to keep your trading costs as low as possible. Small savings on each trade may seem insignificant, but over months or years they can have a noticeable impact on your overall profitability.
Professional traders focus on reducing unnecessary costs wherever possible. They don’t simply choose the broker advertising the lowest spread—they also pay attention to when they trade, which currency pairs they trade, and whether commissions are included.
| Tip | Why It Helps |
|---|---|
| Trade Major Currency Pairs | Major pairs usually have tighter spreads than exotic pairs. |
| Trade During Peak Sessions | Liquidity is highest during the London and New York sessions. |
| Avoid Major News Releases | Spreads often widen dramatically during high-impact events. |
| Compare Total Trading Costs | Look at commissions, swaps and execution quality—not just spreads. |
| Use a Regulated Broker | Transparent pricing is usually more important than the lowest advertised spread. |
7. Common Beginner Mistakes
Many new traders believe that choosing the broker with the lowest spread automatically gives them an advantage. In reality, trading costs are only one part of successful trading, and focusing solely on spreads can lead to poor decisions.
| Common Mistake | Better Approach |
|---|---|
| Choosing a broker based only on the lowest advertised spread. | Compare regulation, execution speed, commissions and withdrawal reliability as well. |
| Trading immediately before major news announcements. | Wait until volatility settles and spreads return to normal. |
| Ignoring the cost of commissions and overnight swap fees. | Always calculate your total trading costs before choosing an account type. |
| Trading exotic currency pairs without understanding their wider spreads. | Start with major currency pairs where spreads are generally lower. |
| Believing lower spreads guarantee higher profits. | Develop a solid trading strategy and practise disciplined risk management. |
Professional Insight
During my years of trading, I realised that consistency mattered far more than chasing the absolute lowest spread. A reliable broker, good execution and disciplined trading habits had a much greater impact on my long-term results than saving a fraction of a pip on each trade. Keeping costs low is important, but protecting your capital and following your trading plan should always come first.
8. Expert Questions & Answers
Q1. Is a lower spread always better?
Answer: Not necessarily. A low spread is beneficial, but you should also consider commissions, execution quality, regulation and customer support before choosing a broker.
Q2. Why do spreads increase during news events?
Answer: Liquidity providers face greater uncertainty during major announcements, so they widen spreads to manage their risk.
Q3. Which currency pairs usually have the lowest spreads?
Answer: Major pairs such as EUR/USD, GBP/USD and USD/JPY generally have the tightest spreads because they are traded in very high volumes.
Q4. Do all brokers charge spreads?
Answer: Yes, although some brokers combine very low spreads with a separate commission while others include their fee within a wider spread.
Q5. Can spreads change during the day?
Answer: Yes. Variable spreads change continuously according to market liquidity and volatility.
Q6. Should beginners worry about spreads?
Answer: Yes, but they shouldn’t become obsessed with them. Choosing a trustworthy broker and following a sound trading plan are far more important than saving a tiny amount on each trade.
Frequently Asked Questions
- What is considered a good forex spread?
For major currency pairs, spreads below one pip are generally considered competitive, although this varies between brokers and account types. - Are spreads fixed or variable?
Some brokers offer fixed spreads, while many use variable spreads that change with market conditions. - Do spreads affect every trade?
Yes. Every trade begins by paying the spread before it can move into profit. - When are spreads usually lowest?
Spreads are often lowest during the busiest trading periods, particularly when the London and New York sessions overlap. - Can I compare brokers using spreads alone?
No. Always compare regulation, commissions, execution quality, trading platforms and withdrawal policies as well.
🛠 My Recommended Low-Spread Forex Brokers
If you’re looking for competitive spreads, remember that the lowest advertised spread isn’t always the cheapest account overall. Consider commissions, execution quality, regulation, and withdrawal reliability alongside spread costs.
For beginner traders in South Africa, I generally recommend starting with brokers that combine transparent pricing, strong regulation, and excellent educational resources.
XM
✔ Competitive Spreads
✔ Low Minimum Deposit
✔ MT4 & MT5
✔ Free Unlimited Demo
A good choice for beginners wanting low trading costs while learning with one of the industry’s best-known brokers.
AvaTrade
✔ Fixed & Competitive Pricing
✔ Strong Regulation
✔ MT4, MT5 & AvaTradeGO
✔ Excellent Education
Ideal for traders who value transparent pricing and comprehensive educational material alongside reliable execution.
Note: Spreads change continuously depending on market conditions and volatility. Always compare live spreads, commissions, and total trading costs before opening a live account.
📘 Continue Your Forex Education
Understanding spreads is only one part of becoming a successful trader. Long-term profitability also depends on risk management, trading psychology, position sizing, and knowing when not to trade.
My book, Forex Trading for Beginners, brings together the lessons I learned during more than eight years of live trading. It’s written specifically for beginners and explains forex trading in clear, practical language without hype or unrealistic promises.
Disclaimer: Forex and CFD trading involves significant risk and may not be suitable for every investor. This guide is provided for educational purposes only and should not be considered financial or investment advice. Always perform your own research before choosing a broker or opening a trading account. Past performance does not guarantee future results. Please read our full Risk Disclosure.
🎉 Congratulations!
You have completed Module 2 – Lesson 2 – Forex Spreads Explained
Click below to return to the Academy and continue with Module 2 – Lesson 3.