Forex is always priced in pairs between two different types of currencies. When you make a trade, you have to buy one currency and sell another at the same time. If you want to exit the trade, you must buy/sell the opposite position. For example, when you think the price of the Euro is going to rise against the US Dollar. In order for you to enter a trade, you will have to buy Euros and sell US Dollars.

If you want to leave the trade, you will have to sell Euros and buy back US Dollars. You will be hoping that you were right in your guess and that the exchange rate for EU/USD has actually risen, which means that you will get more Euros back than when you bought them, which is how you will make a profit.

These days just about every Forex broker is claiming to have the tightest spreads in the industry. But marketing does have the ability to be deceiving. The topic of spreads in the Forex spot market is very complicated and often not easy to understand. However, nothing affects your trading profitability more.

First of all in order to understand the spread, you need to know what it is. A spread is the difference between the ask price (the price you buy at) and the bid price (the price you sell at) that is quoted in the pips. If the quote between EUR/USD at a given moment is 1.2222/4, then the spread equals 2 pips. If the quote is 1.22225/40, then the spread is going to equal 1.5 pips.

The spread is how brokers make their money. Wider spreads will result in a higher asking price and a lower bid price. The consequence to this is that you have to pay more when you buy and get less when you sell, which makes it more difficult to realize a profit

understanding Forex spreads part 1
understanding Forex spreads part 2
understanding Forex spreads part 3

choosing your Forex strategy
how to trade Forex eBook - contents