Spread widening in forex describes a situation where the gap between the bid price (what you can sell at) and the ask price (what you must pay to buy) becomes noticeably larger than normal. That gap — the spread — is one of the basic costs of trading. When it widens, entering and exiting positions becomes more expensive, execution can be less predictable and some strategies (for example scalping) can become unprofitable. This article explains what spread widening looks like, why it happens, how it affects traders, and practical ways to manage the risk.
The spread: the simplest explanation
In everyday terms, imagine a market stall that lists a buyer willing to pay $1.1200 for EUR and a seller asking $1.1202. The spread is 0.0002 (2 pips). In many major currency pairs you will see tiny spreads most of the day because a lot of buyers and sellers are active. Spread widening is what happens when that comfortable 2‑pip gap stretches to 10, 50 or even hundreds of pips. You still buy at the ask and sell at the bid, so a wider spread means the market has to move further in your favour before you are profitable.
Why spreads widen: the main drivers
Spread width is not arbitrary — it reflects how hard it is for buy and sell orders to meet at nearby prices. Traders and market makers respond to changing risk and liquidity conditions, and that response shows up as spread changes. The most common causes are:
- Market liquidity drying up so fewer orders sit close to the current price.
- Sudden increases in volatility that make pricing riskier for liquidity providers.
- Scheduled economic news or surprise events that create order imbalances.
- Time of day and trading sessions — some hours are thinly traded.
- The instrument itself — exotic or low-volume pairs usually have wider spreads.
- Broker execution model and liquidity relationships — not all brokers pass on the same pricing.
Those factors vary in importance depending on the moment. For example, a big central bank announcement will push spreads wider across many pairs. A quiet Tuesday night in your local time can widen spreads because liquidity is low even without news.
How widening looks in practice — concrete examples
A practical way to picture spread changes is to compare two pairs and two times of day. EUR/USD, one of the most liquid pairs, might quote 0.2–1 pip during the London/New York overlap. USD/TRY, an exotic, can have spreads of many tens of pips even during the day; at night that might expand further. Another example: before a major U.S. non‑farm payrolls (NFP) release, makers often increase the ask–bid gap for a few minutes to protect against sudden moves. A trader who placed a tight stop just before the release might find the stop executed at a worse price because the spread and slippage widened during the spike.
On charts narrow spread periods look “smooth”; wide spreads often appear as isolated price jumps, gaps or unusually large single‑tick moves. Traders watching depth-of-market (DOM) or tick charts will see liquidity thin out before a widening event.
Who widens spreads and when
Spreads are a market phenomenon combined with broker behaviour. Interbank and electronic liquidity providers change their two‑sided quotes in response to risk. Brokers then either pass those quotes through (ECN/STP) or internalise them (market maker). During low‑liquidity windows, some market makers or smaller brokers may widen spreads far more aggressively than larger ECN providers because they manage risk differently.
Certain times are more prone to widening: the moments when major sessions close/open, overnight in local time, and immediately around scheduled data releases. Unexpected geopolitical news or flash events can also cause instant and extreme widening.
How spread widening affects traders
When spreads widen, the immediate effect is higher transaction cost: you enter deeper into the spread and need a larger favourable move to cover costs. That impacts strategies differently. A long‑term position is less sensitive to occasional spread expansion, while scalpers and high‑frequency traders depend on tight spreads and may be pushed out of the market. Wider spreads can also cause stop‑loss orders to trigger prematurely and increase slippage when the market moves quickly.
Widening can also be a signal. A sudden and temporary increase in spread often indicates reduced liquidity or panic, which may precede a rapid price move or a short-term reversal. Some traders use that information for context — but interpreting it reliably requires testing and discipline.
Practical ways to manage or avoid spread widening
Start with timing and instrument choice. Trading major pairs during session overlaps usually gives the most stable spreads. If you trade around news, consider avoiding market orders in the seconds before major releases or use limit orders with care. For positions held overnight, make sure your stops account for typical overnight spread behaviour for that instrument.
Use order types and trade sizing to reduce exposure: placing limit orders lets you avoid paying a temporarily inflated ask, and reducing position size during thin sessions limits the absolute cost if spreads spike. Choose a broker whose execution model and historical pricing you understand; if you need consistently tight spreads, an ECN or low‑latency STP model with transparent fees is generally preferable to a model that advertises “zero spread” but adds costs elsewhere.
Finally, develop a simple routine: check historical spread patterns for the pairs you trade, keep an eye on an economic calendar, and avoid holding highly leveraged scalps through scheduled news.
Risks and caveats
Spread widening is a normal market phenomenon but it also creates real risks. Execution during a spread spike can produce large slippage; stop orders may execute at prices far from the displayed stop level in volatile moments; and some brokers may widen spreads for commercial reasons or during technical issues. Because of these possibilities, always remember that trading carries risk and past patterns may not repeat. This article is educational and not personalised trading advice — you should test any approach on a demo account and consider seeking independent advice if needed.
Key Takeaways
- Spread widening means the bid‑ask gap grows larger, increasing trading cost and execution uncertainty.
- Main causes are reduced liquidity, higher volatility, news events, trading hours, the instrument, and broker mechanics.
- Manage widening by trading liquid pairs during active sessions, using appropriate order types and stops, checking economic calendars, and choosing transparent execution.
- Trading carries risk; this information is educational and not personalised advice.
References
- https://fxtrendo.com/what-is-a-wide-spread/
- https://help.toponetrader.com/en/articles/9071404-why-do-spreads-widen-at-certain-times
- https://fenefx.com/en/blog/spread-increase-and-widening-at-night/
- https://www.investopedia.com/ask/answers/06/forexpercentagespread.asp
- https://fxview.com/global/blogs/why-do-forex-spreads-widen-6-critical-reasons
- https://atas.net/technical-analysis/widening-spread/