Some new traders believe that spreads don’t matter in profitability, focusing only on winning trades and ignoring transaction costs. However, this assumption is a serious mistake. Spreads — the difference between the bid and ask price — are a real cost applied to every trade. Over time, especially for active traders, spreads can significantly affect overall profitability.

Let’s explore why spreads matter, how they impact trading outcomes, and how smart traders manage this important factor.

Understanding Spreads in Trading

The spread represents the broker’s charge for executing a trade. It is the cost you pay to enter and exit the market:

• Tight spreads: Often found on major pairs like EUR/USD or USD/JPY, reducing costs.
• Wide spreads: Common on minor or exotic pairs, increasing transaction expenses.
• Variable spreads: Can widen during news events or periods of low liquidity.

Spreads apply whether your trade wins or loses, meaning they immediately impact your breakeven point.

How Spreads Affect Profitability

Spreads impact your profitability in several key ways:

• Every trade starts negative: You must overcome the spread before you start making a profit.
• Frequent trading magnifies spread costs: Scalpers and day traders who open many trades per day are especially sensitive to spread size.
• Larger spreads require bigger moves: When spreads are wider, price must move further in your favour before a trade becomes profitable.
• Spread widening risk: During major news events, spreads can expand suddenly, affecting stop-loss and take-profit execution.

Ignoring spreads can result in strategies that look profitable on paper but lose money in real-world trading.

Examples of Spread Impact

Consider two traders:

• Trader A: Trades EUR/USD with a 0.8-pip spread.
• Trader B: Trades GBP/NZD with a 4.0-pip spread.

If both target 10-pip profits per trade, Trader B must achieve a far higher percentage move just to reach the same net profitability — and takes on higher relative transaction costs.

Over hundreds of trades, the difference in cumulative spread costs can be huge.

How to Minimise Spread Impact

Professional traders manage spread costs by:

• Choosing high-liquidity pairs: Focusing on major pairs with consistently low spreads.
• Trading during active sessions: Spreads are tightest during overlaps like London–New York.
• Avoiding news spikes: Staying out of the market during major scheduled events that can widen spreads unpredictably.
• Selecting the right broker: Reputable brokers offer tighter spreads and better execution.

Managing spreads is a key part of professional risk and cost control.

Conclusion: Spreads Absolutely Matter for Profitability

In conclusion, spreads do matter in profitability. They are an unavoidable trading cost that directly affects net gains, especially for active traders and short-term strategies. Successful traders factor spreads into their risk-reward calculations, trading plans, and broker choices to ensure they are not giving away hard-earned profits unnecessarily. Ignoring spreads is a rookie mistake — managing them carefully is part of what separates professionals from amateurs.

If you want to learn how to optimise your trading costs and build consistently profitable strategies, explore our Trading Courses and take full control of your trading performance.