If you’re trading with a prop firm, or trying to pass one of their challenges, you’ll know that every pip counts. While it's great to have good entry and exit points, it's also important to know that your trading costs can affect you in ways you might not be expecting, and the biggest cost in forex that nobody tells you about is the spread.
Many beginners don’t realize the importance of the spread. In fact, I’m sure that some of them don’t even calculate it properly. However, in the world of funded trading, with rules and profit targets, it's not something that you can ignore. Let's talk about it.
What Is the Forex Spread, Really?
In forex, you'll always have two prices to look at in your trading platform:
– Bid price, or what people are willing to pay
– Ask price, or what people are asking for
The spread is just the difference between the two prices.
A good example of this is a currency exchange shop in an airport. They'll buy your currency at one price and sell you another at a slightly higher price. That difference is their profit. That's your spread in forex.
For example:
– EUR/USD Bid Price: 1.1000
– EUR/USD Ask Price: 1.1002
– Spread = 0.0002 = 2 Pips
As soon as you make a trade, you'll already have lost the spread. The price has to move in your direction at least that much just to get even.
How to Calculate Spread Step by Step
Most trading platforms show spreads automatically, but knowing how to calculate spread in forex manually helps you evaluate trading conditions—especially when comparing brokers or prop firm accounts.
Formula:
Spread = Ask Price − Bid Price
Then convert that difference into pips.
Example 1: Major Pair (EUR/USD)
Difference = 0.0002 = 2 pips
Example 2: JPY Pair (USD/JPY)
JPY pairs use two decimal places for pips.
Difference = 0.02 = 2 pips
Why Spreads Matter So Much in Prop Firm Trading
If you’re a prop trader using your own money, this might not seem like a big deal. However, prop firms don’t operate this way.
Here are some reasons why spreads are important for prop traders:
1. Fixed Profit Goals
In prop trader contests, profit targets are fixed. If your spread is too high, this means that even larger price movements are required in order to achieve your profit targets.
2. Strict Drawdown Limits
You don’t want to incur unnecessary losses. If your spread is too high, this will increase your risk of hitting your stop-loss orders even if there is very little price movement.
3. Scalping Issues
One of the ways that many prop traders make money is by scalping. However, if your spread is too high, this makes it difficult to scalp profitably. If your spread is 3 pips and your profit target is 5 pips, this means that most of your profit will simply evaporate.
4. Issues with News Trading
In news trading, your spread might increase significantly. If your normal spread is 1 pip, this might jump to 10 or more during major economic announcements. This is something that could ruin your trade immediately.
Fixed vs. Variable Spreads
Most prop firms offer variable spreads, meaning they change depending on market conditions.
Fixed Spread
- Stays the same most of the time
- Easier to plan trades
- Usually slightly higher overall
Variable Spread
- Tight during calm markets
- Widens during volatility
- More realistic market conditions
For prop traders, variable spreads are common because firms mirror real institutional pricing.
Most Traded Forex Pairs and Their Typical Spreads
Not all currency pairs cost the same to trade. Liquidity plays a huge role.
Most traded forex pairs have tighter spreads because there are more buyers and sellers.
1. Major Pairs — Lowest Cost
These include currencies from the world’s largest economies.
EUR/USD — The King of Liquidity
- Most traded pair globally
- Tightest spreads (often 0.5–1.5 pips)
- Smooth price movement
- Ideal for prop firm challenges
USD/JPY
- Very liquid
- Slightly wider spreads than EUR/USD
- Often 1–2 pips
GBP/USD
- More volatile
- Spreads usually 1–2.5 pips
- Moves fast, offering good profit potential
AUD/USD and USD/CAD
- Moderate spreads
- Influenced by commodities (oil, metals)
2. Cross Pairs — Medium Cost
These don’t include the US dollar.
Examples:
Spreads are wider because liquidity is lower.
GBP/JPY, for instance, is famous for big price swings—and higher spreads to match.
3. Exotic Pairs — Highest Cost
These involve emerging market currencies:
- USD/TRY (Turkish lira)
- USD/ZAR (South African rand)
- USD/MXN (Mexican peso)
Spreads can be huge—sometimes 20 pips or more. Most prop traders avoid them unless they have a specific strategy.
Why Major Pairs Are Best for Prop Firm Traders
That's why most funded traders focus on majors.
Lower Trading Costs
Spreads are tighter on majors, which means you get to keep more of your profit.
More Predictable Behavior
Major currencies behave in predictable ways in response to economic announcements and technical levels.
Easier Risk Management
You can use tighter stops and targets without being consumed by costs.
Better Execution
More liquidity means less slippage, another cost factor.
How Spread Impacts Different Trading Styles
Your strategy is what determines how much spreads matter.
Scalping
Spreads are a major concern. For example, a 2-pip spread can kill a strategy that relies on smaller moves.
Day Trading
Spreads are still a factor, but they are not too difficult to deal with if you're aiming to make bigger moves.
Swing Trading
Spreads are not a major concern because you're aiming to make moves in the range of dozens or even hundreds of pips. Most prop challenges involve intraday trading, and that's why spreads are a concern.
How to Reduce Spread Costs in Prop Trading
You can’t avoid spreads, but you can minimize their effects.
Trade During Peak Market Hours
This is when London and New York sessions overlap. This is the time with the highest liquidity and the smallest spreads.
Avoid Low-Liquidity Times
Late US session or early Asian session may have large spreads.
Avoid Major News Events
Unless your strategy is designed for news, spreads during news events can be very harsh.
Use the Right Pair
If you are not able to reach your profit targets, then it is advisable to switch from a cross pair to EUR/USD.
Hidden Spread Traps That Catch New Traders
However, even experienced traders may not pay attention to these.
1. Weekend Gaps
There are increased spreads before normal trading begins again.
2. Account Type Differences
Prop firm demo account spreads may not be identical to live account spreads.
3. Stop-Loss Triggering
Stops are normally based on the bid price for buying and ask price for selling. Spread spikes may trigger stop-losses early.
Final Thoughts:
In prop firm trading, it’s not just about calling the market correctly. It’s about precision in cost, risk, and execution.
While the difference in spreads might not be significant individually, it quickly adds up when you’re making dozens, or even hundreds, of trades. The people who get past the challenges consistently are not only good at trading, but they’re also good at the underlying mechanics of trading.
If you’re focusing on major pairs, trading during liquid hours, and considering spreads in all your trading decisions, you’re already ahead of the majority of people trying to get funded as a trader.
At the end of the day, making money in trading isn’t about losing as few pips as possible to the market. It’s about keeping as many as possible.
