Forex spread cost is the difference between the sell price (bid) and the buy price (ask) of an instrument, and it represents a transaction cost for the investor even when no classic commission applies. The French Autorité des marchés financiers (AMF) states this explicitly about CFDs: “Acheter et vendre des CFD entraîne des frais correspondant au coût du spread, c’est-à-dire de la différence entre le prix d’achat et de vente du CFD” (AMF, Les CFD).
For a trader who is new to leveraged products, this cost never appears on a statement line labeled “fees”: it is already built into the two prices shown. Understanding how it forms helps evaluate the true cost of a strategy, especially when positions are opened and closed frequently.
What the spread actually represents
An instrument quoted on CFD or Forex markets always displays two simultaneous prices: the sell price (bid), at which the trader can sell immediately, and the buy price (ask), at which the trader can buy immediately. The ask is always higher than the bid, and this gap is the spread.
The AMF gives a simple numerical example to illustrate this mechanism: “Par exemple, un CFD s’achète 101 euros et se vend 99 euros” (AMF, Les CFD). In this example, the 2 euro gap represents the immediate cost borne by the investor as soon as the position is opened, then theoretically closed, regardless of any commission charged on top.
This mechanism is not unique to European CFDs. The US SEC describes the same principle on the over the counter securities market, where a market maker buys at the bid and resells at the ask: “The term ‘bid’ refers to the highest price a market maker will pay at any given time to purchase a specified number of shares of a stock. The term ‘ask’ refers to the lowest price at which a market maker will sell the stock” and notes that “Market makers make their money on the spread” (SEC, Spread). The spread therefore directly compensates whoever provides the liquidity, whether a market maker or a CFD broker.
Fixed spread and variable spread: two different logics
A fixed spread stays the same regardless of market conditions: the broker guarantees a constant gap between bid and ask, which makes it easier to calculate the cost before opening a position, but generally means that cost is set at a higher level to compensate the broker for the risk taken during volatile periods.
A variable spread fluctuates continuously based on real supply and demand on the underlying market. It can be very tight when liquidity is abundant, then widen sharply as soon as trading thins out or uncertainty rises.
The choice between the two is not neutral for risk management: a trader who opens and closes positions quickly feels the effect of the spread on every round trip, whether that spread is fixed or variable.
Why the spread can widen suddenly
The spread is not a fixed number: it is recalculated constantly based on the liquidity available for the instrument in question. Around major macroeconomic announcements, at the open or close of a session, or on a thinly traded instrument, market makers and brokers generally widen the gap between bid and ask to protect themselves against the risk of not finding a counterparty at the quoted price.
This cost is often layered on top of other fees. The decision by the European Securities and Markets Authority (ESMA) that temporarily restricted the marketing of CFDs to retail clients in 2018 explicitly places the spread among several cumulative costs: “In addition to transaction fees, spreads and various other financing costs and charges may be applied. These include commissions […] and/or account management fees” (ESMA, Decision 2018/796). ESMA thus underlines that the spread adds to, and does not necessarily replace, other costs such as overnight financing fees already covered on this blog.
Frequently asked questions about Forex spread cost
Is the spread different from a commission?
Yes. A commission is an explicit fee charged on top, while the spread is already built into the two prices shown (bid and ask). The AMF notes that the cost of the spread exists as soon as a CFD is bought and sold, regardless of any additional commission.
Does a tight spread always mean a lower cost?
Generally yes for a single transaction, since the gap between bid and ask is smaller. But a variable spread that is tight at one moment can widen sharply seconds later if liquidity deteriorates, which makes the real cost unpredictable in advance.
Why does the spread widen during economic announcements?
Because liquidity temporarily shrinks: market makers take on more risk quoting a firm price when expected volatility is high, and they offset that risk by widening the gap between bid and ask.
Is the spread regulated in Europe?
ESMA governs the marketing of CFDs to retail clients and identifies the spread as one of the costs that must be disclosed to the client, alongside commissions and financing fees, without however setting a maximum level for the spread itself.
To go further on CFD related costs, you can read our article on ESMA leverage caps on CFDs and the one on negative balance protection on a CFD account, two mechanisms that round out the overall picture of the real cost of a CFD position.