Spread widening: the invisible force that just cost you $300 (and how to stop it)
Imagine you are at a currency exchange booth at the airport. You see a screen showing: Buy EUR: $1.12 | Sell EUR: $1.08.
If you buy 1,000 Euros and immediately change your mind and sell them back, you don’t get $1,120 back. You get $1,080. You just lost $40 instantly. That $40 difference is the spread.
Now, imagine a financial crisis hits the news. The airport exchange booth suddenly changes the screen to: Buy: $1.30 | Sell: $1.00.
The gap just exploded. You now lose $300 on the same trade. That, in financial terms, is Spread Widening.
What is Spread Widening?
In trading (Forex, Stocks, Crypto, or Commodities), the Spread is the difference between the Bid (the price a buyer will pay) and the Ask (the price a seller wants).
Spread Widening occurs when this gap becomes significantly larger than the average historical range.
- Normal Spread: 1.1000 / 1.1001 (1 pip wide)
- Widened Spread: 1.1000 / 1.1020 (20 pips wide)
Suddenly, your cost to enter a trade has increased by 20x.
Why does spread widening happen?
Spread widening isn’t a glitch; it is a feature of market mechanics. It happens during specific conditions:
High volatility
When the market moves too fast, market makers and liquidity providers widen spreads to protect themselves from being “run over.”
- Example: The Swiss National Bank removes the Euro/Swiss Franc cap in 2015. Spreads went from 2 pips to over 1,000 pips in seconds.
- Result: Traders couldn’t exit positions. Stop losses were ignored.
Low liquidity
When fewer people are trading, it is harder to match buyers and sellers. Brokers widen spreads to compensate for the risk of holding an illiquid asset.
- Example: Trading the Japanese Yen (JPY) at 3:00 AM New York time (Sunday afternoon in Asia). Liquidity is thin. A spread that is normally 3 pips might widen to 15 pips.
- Result: You pay a massive hidden fee just for trading at the wrong time of day.
Macroeconomic announcements
Every month, governments release jobs reports (NFP), inflation (CPI), or interest rate decisions. Five minutes before the data drops, spreads widen like a bank vault closing.
- Example: The US Federal Reserve announces a rate hike. The EUR/USD spread on a standard account might blow out from 1 pip to 50 pips.
- Result: If you try to “trade the news,” your profit target must be huge just to break even.
Market gaps
When markets close on Friday and open on Sunday, events happen (wars, elections, tweets). The price “gaps” over the weekend.
- Example: A cryptocurrency is $20,000 on Friday. Over Saturday, an exchange is hacked. It opens at $19,000 on Sunday. The spread is $100 wide because no one knows the true price.
- Result: You cannot exit until Monday morning, and you take a massive loss.
Widened spread example
Let’s say you are a scalper. You make 10 trades a day, aiming for 5 pips profit per trade.
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Normal Spread: 1 pip.
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Math: To get a 5-pip profit, the market must move 6 pips (1 pip cost).
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Widened Spread: 4 pips (happens during London/New York overlap volatility).
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Math: To get a 5-pip profit, the market must move 9 pips.
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You now need the market to move almost twice as far to make the same money. If you have a 5-pip stop loss and a 4-pip spread, you are already down 4 pips before the trade starts.
How to survive spread widening
- Avoid trading 10 minutes before major news.
- Trade major pairs (EUR/USD, GBP/USD) – they have the tightest spreads.
- Use “Limit Orders” instead of “Market Orders” to control your entry price.
- Check the economic calendar (Blue dots on Forex calendars mean danger).
5 broker reviews for trading during volatility
If you are worried about spread widening, you need brokers known for transparency and tight execution during normal hours. Here are 5 reviews.
XM
- Min. Deposit: $5
- Regulation: CySEC, ASIC, FCA
- Best for: Micro-account traders.
XM is famous for handling high volume without massive slippage. They offer a “Negative Balance Protection” policy, meaning if spread widening blows past your account balance, you don’t owe the broker money.
- Spread warning: Their standard accounts have spreads starting at 0.6 pips (good), but during news events, they widen significantly. Use their “Zero” account if you hate spread widening.
- Verdict: Excellent for beginners because of the low deposit ($5).
BlackBull Markets
- Min. Deposit: $0 (No minimum)
- Regulation: FMA (NZ), FSA Seychelles
- Best for: ECN (Electronic Communication Network) lovers.
BlackBull is an ECN broker. This is crucial for spread widening because ECN brokers aggregate prices from many liquidity providers. While spreads do widen, they don’t “artificially” widen as much as market makers.
- Spread warning: They offer 0.0 pips raw spreads (plus a small commission). This is the gold standard for avoiding the “invisible tax.”
- Verdict: Best for serious traders who want raw market pricing.
AvaTrade
- Min. Deposit: $50
- Regulation: Central Bank of Ireland, ASIC, FSCA, CySEC (Highly regulated)
- Best For: Fixed spread options (rare today).
AvaTrade is unique because they offer Fixed Spreads on certain accounts. That means even when the market explodes, your spread stays the same.
- Spread warning: Fixed spreads are higher than variable spreads during calm times. You pay a premium for the safety of knowing the spread won’t widen.
- Verdict: If you are terrified of weekend gaps or news spikes, AvaTrade’s fixed spread accounts are a lifesaver.
Exness
- Min. Deposit: $10
- Regulation: FCA, CySEC, FSA
- Best for: High-volume scalpers.
Exness offers Unlimited Leverage (up to 1:Unlimited), but with great power comes great risk. Their raw spread accounts (0.3 pips) are very competitive.
- Spread warning: Exness is transparent about their “margin call” policies. However, during extreme widening (like the 2020 Oil crash), they adjusted leverage instantly to protect themselves.
- Verdict: Great for experienced traders using small lot sizes to test spread behavior.
Pepperstone
- Min. Deposit: $0 (No minimum)
- Regulation: FCA, ASIC, CySEC, DFSA
- Best for: Professional traders (Razor account).
Pepperstone is widely considered the “king of tight spreads.” Their Razor account offers spreads as low as 0.0 pips.
- Spread warning: They use “Smart Routing” to find the best price. If you trade during the London/New York overlap, spreads are microscopic. If you trade during Asian lunch, they widen.
- Verdict: Top-tier choice. They charge a small commission ($7 per round lot) but offer the fairest spreads during normal market hours.
Related articles:
What is spread widening and when it happens - FAQ