What are Spreads in Forex?
You might have noticed that currency pairs always have two prices — for instance:
EUR/USD – 1.1050 / 1.1052
This is referred to as the Bid/Ask spread.
Bid Price (1.1050): What you receive if you sell the currency
Ask Price (1.1052): What you pay if you purchase the currency
The spread is the difference:
1.1052 – 1.1050 = 0.0002 = 2 pips
That’s what the broker charges as a form of “fee” for doing your trade.
Tighter spreads = less cost = better for traders.
The major currency pairs tend to have the tightest spreads.
What Is Leverage?
Leverage lets you trade a large size of a trade using little of your own money.
Suppose you have $100 in your trading account and your broker provides 1:100 leverage.
Which means you can trade a $10,000 value (100 times your deposit).
It’s like taking a loan from your broker — but only for trading.
Advantages: You can make more profits with lesser capital
Disadvantages: Losses also rise with leverage if you are not cautious
What Is Margin?
When you trade with leverage, your broker requires you to set aside some money as a buffer. This is referred to as the margin.
Assume you place a $10,000 position with 1:100 leverage.
You are required to deposit just $100 as margin.
But when your losses increase and your account balance falls too far, you may be sent a margin call — a notice to deposit more money or liquidate positions in order to prevent losing your entire account.
Margin keeps you in command. Not knowing your margin is trading without brakes.
How Spreads, Leverage & Margin work together:
Let’s illustrate with a simplified example:
You purchase 1 mini lot (10,000 units) of EUR/USD
Broker provides 1:100 leverage
Margin needed = $100
Spread = 2 pips = $2 cost
If price moves 10 pips in your direction, profit = $10
So:
Net gain = $10 profit – $2 spread = $8
But if the trade goes against you, the loss also gets multiplied. That’s why risk management is important.
Last Tips Before You Trade
- Always look at the spread before opening a trade
- Use low leverage as a beginner (e.g. 1:20 or 1:50)
- Know your margin level to avoid account wipeouts
- Practice on a demo account before trading real money
You can do all of this for free with a demo on Exness — a reliable forex broker that offers tight spreads, customizable leverage, and easy deposits.
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