The Bid and Ask Price in Forex: Why This Spread Eats Nigerian Traders Alive

Every single forex quote you see is actually two prices, not one. It's the core difference between bid and ask price in forex. The bid price is what the market (or your broker) is willing to pay you for the currency pair. If you're selling EUR/USD, you sell at the bid. The ask price (sometimes called the offer) is the price you must pay to buy the currency pair. You buy at the ask.

Think of it like a bureau de change on Allen Avenue in Ikeja. They have a board: "Buying USD/NGN at 1500, Selling USD/NGN at 1520." If you walk in with dollars to sell for naira, you get their 'buy' rate (the bid). If you want to buy dollars with naira, you pay their 'sell' rate (the ask). The forex market works the same, just electronically and at lightning speed.

The immediate problem? The ask is always higher than the bid. That gap is the broker's profit, called the spread. Your trade is in a hole from the very first second. I learned this the hard way in 2015, scalping GBP/JPY. I'd nail the direction, price would move 5 pips in my favor, and my account would barely budge. I was trading against a 7-pip spread on a volatile pair, a classic mistake for a scalping strategy. I was basically working for my broker.

Let's move from theory to your bank account. The spread isn't a percentage; it's measured in pips. One pip is typically 0.0001 for most pairs like EUR/USD. But the cost in your local currency is what matters.

The Cost in Cash

Here’s a simple formula: Spread Cost = Spread in Pips × Pip Value × Lot Size.

Let's say you're trading USD/NGN (which many Nigerian brokers offer as a CFD). Assume:

• Spread: 50 NGN (yes, it can be that wide on exotics)
• You buy 1 standard lot (100,000 units)
• Pip Value for USD/NGN: For a 100,000 unit trade, a 1 NGN move = 100,000 NGN. So 1 pip (0.01 NGN?) Let's simplify with a real example.

Actually, let's use a major pair where the math is clearer. You trade 0.1 lots (10,000 units) of EUR/USD with Pepperstone.

• Spread: 0.7 pips (a good raw spread account)
• Pip Value for 0.1 lots: $1
• Your immediate cost: 0.7 pips × $1 = $0.70

Now convert that to Naira at 1500/$: ~₦1,050 gone instantly. For a 1-lot trade, that's ₦10,500. That's not a "fee," it's a direct loss baked into your entry. Use our position size calculator to see this in real-time for your trades.

Comparing Broker Spreads

Spreads vary wildly. A broker like Exness might show super tight spreads on EUR/USD (0.1 pips) during London hours, but that's often on a zero-commission account where they make money elsewhere. IC Markets and Pepperstone offer raw spreads but charge a commission per lot. You must add the commission to the spread to get the true cost.

The "raw spread" account is cheaper in this example. But you have to do this math for your typical trade size. For nano lots (0.01), the wide-spread account might be simpler, even if more expensive per pip.

The spread on your screen isn't fixed. It's a live animal, and it bites hardest when you're most vulnerable. This is where traders get slaughtered.

Major Economic News: When US Non-Farm Payrolls or ECB rate decisions hit, the spread on EUR/USD can blow out from 0.7 pips to 20, 30, even 50 pips in a millisecond. I got caught in this in 2020. I had a buy limit order placed 5 pips above the market on GBP/USD before a CPI release. The news hit, my order filled, and the spread was 18 pips. I was down $180 on a 1-lot trade before the chart even started moving. The trade eventually went my way, but the massive spread ate over half the profit.

Illiquid Sessions & Exotic Pairs: Trading USD/NGN or EUR/NGN? These are exotic pairs. Their spreads are permanently wide (often 50-100 pips) because there aren't enough buyers and sellers. Trading them intraday is a spread-paying exercise. Similarly, trading AUD/USD during the Asian session is calmer, but the spread is often wider than during London overlap.

The Stop Loss Trap: This is critical. Your stop loss is triggered at the bid price for a long trade. If the market gaps down or the spread widens violently, your stop can be executed at a far worse price than you set - a phenomenon called slippage. That 'guaranteed' stop loss isn't always guaranteed unless you pay for that specific feature, which again, widens your spread. Understanding your margin call level is tied to this; a widening spread can eat your usable margin faster than the chart price moving.

You can't avoid the spread, but you can stop letting it rob you. Your entire strategy must account for it.

Strategy Selection

Scalping: This is a spread-paying job. If your strategy aims for 5-10 pip profits, a 2-pip spread means the market has to move 2 pips just for you to break even. You need exceptionally tight spreads and a high win rate. Most Nigerian retail traders fail at scalping for this exact reason.

Swing Trading: This is where you can make the spread irrelevant. If you're aiming for 150-pip moves on XAU/USD (gold), a 50-cent (5-pip) spread is just a 3% entry cost on your target. It becomes a minor factor. Swing trading frameworks naturally overcome the spread's friction.

Pair Selection

Stick to major and minor pairs (EUR/USD, GBP/USD, USD/JPY, AUD/USD). Avoid exotics (USD/NGN, USD/ZAR, USD/TRY) unless you have a very long-term view. The spread on EUR/USD might be 0.7 pips. On USD/TRY, it could be 300 pips. You're fighting an impossible battle.

Order Types

Market Orders: You accept the current spread. Simple, but expensive at volatile times. Limit Orders: You set the price you want. If buying, you set a limit at the bid price or lower. This lets you get the spread instead of paying it. But there's no guarantee it will fill. I use limit orders for 80% of my entries now, patiently waiting for price to come to me. It requires more discipline, but it turns the spread from a cost into a potential reward.

Check the typical spreads for your chosen pair on your broker's site. XM and others publish average spread tables. Don't trust the "from 0.0 pips" marketing. Look at the average during the session you trade.

When comparing brokers in Nigeria, everyone looks at use and bonuses. You should be obsessing over the spread and its structure.

ECN/STP Brokers (Raw Spread + Commission): Brokers like IC Markets or Pepperstone pass you directly to liquidity providers. You see the raw interbank spread (e.g., 0.1 pips on EUR/USD) but pay a commission (e.g., $7 per 100k lot round turn). This is usually cheaper for larger volumes. The spread is stable and tight, especially during high liquidity. This is what I use for my main account.

Market Maker Brokers (Wider Spread, No Commission): The broker is the counterparty to your trade. They quote you a spread that includes their profit. It's simpler (no separate commission) but often more expensive overall. Spreads can widen dramatically during news. Some are reputable, but understand the conflict of interest.

The Nigerian Reality: You must ensure the broker is accessible - deposits and withdrawals in naira, local bank support. Then, drill into the spread. Open a demo account and watch the spread on the pairs you trade:

• Check it at 3 AM WAT (Asian session).
• Check it at 10 AM WAT (London session).
• Check it during a simulated news event.

That demo data is more valuable than any promotional material. The spread is the single biggest determinant of your trading cost over time. A difference of 0.5 pips on your usual lot size, over hundreds of trades, is the difference between profitability and blowing up.

The final step is psychological. You must internalize that the spread is a real, tangible loss. It's not a 'fee,' it's the first move against your position.

When you analyze a potential trade, your first question shouldn't be "Where's my target?" It should be "Is my target far enough away to cover the spread and still make a worthwhile profit?"

I keep a simple note on my monitor: "Breakeven = Entry + Spread." If I buy EUR/USD at 1.0850 (ask) with a 1-pip spread, my true breakeven price is not 1.0850. It's 1.0851 (the bid price needs to rise to my entry ask). The market has to move a full pip in my favor just for me to be back at zero.

This changes your risk-reward calculations dramatically. A 1:2 risk-reward ratio where you risk 10 pips to make 20 is actually risk 10 pips to make 20 minus the spread. If the spread is 2 pips, your reward is effectively 18 pips. Your ratio is now 1:1.8. It erodes your edge.

Tools that show your true breakeven line on the chart are useful. This is why I rely on trading software that integrates this reality directly into the platform, so I'm never guessing. Managing multiple trades without this clarity is a fast track to death by a thousand cuts. You think you're slightly up on three trades, but after accounting for the spread you're actually down. It warps your perception.

Adopt this mindset, and you'll start seeing the market not as a place to be right, but as a business with real overheads. The spread is your rent, your light bill, your data cost. You wouldn't open a shop in Lekki without knowing your rent. Don't trade a single pip without knowing your spread.