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Understanding forex spreads can be quite confusing and difficult.  They involve a number of forex trading concepts. 

Let us start with a basic explanation of what forex spreads are.  Forex spreads can be described as the difference between the amount the buyer pays for the currency and the amount that the seller is willing to sell the currency. 

Let’s make use of an example.  If you want to start trading the Euro and the British Pound (EUR/GBP=X), then your market maker will present the value with two numbers, for example, EUR/GBP= 0.8982, 0.8984. 

Forex spreads for this currency pair is then denoted as “2 pips,” pip being the unit for the fourth decimal place. Forex spreads, therefore, are indicated in pips.

What do forex spreads have to do with trading?

Now that you know the basics of forex spreads, let’s see how forex spreads affect your trading.  When you get into forex trading, you will be dealing with brokers and other financial middlemen who all rely heavily on forex spreads for profit. 

The amount of money corresponding to the forex spreads goes to the middlemen.  As forex spreads increase, the buying price increases and the selling price decreases, which means you will make less money on your investment. 

In other words, your main aim is to find a market maker or broker who can give the lowest possible forex spreads.