Floating spread
Family IV · Costs
Not to be confused with fixed spread, spread, forex spread, good spread.
Floating spread is the variable gap between the best bid and best ask price quoted for an instrument, set by the market rather than fixed by a dealing desk. It typically widens when liquidity thins or volatility rises, and narrows when order flow is deep and stable. The quoted spread at any moment is therefore a snapshot, not a permanent cost.
What drives the width
A floating spread reflects the prices available from the liquidity providers and venues that a broker routes orders to. Its width is influenced by:
- Liquidity — deeper order books generally produce tighter quotes.
- Volatility — fast price movement often widens the gap between bid and ask.
- Session timing — spreads in major currency pairs tend to be tighter when the main financial centres overlap.
- News and events — scheduled data releases or unexpected headlines can cause abrupt widening.
Because these factors change constantly, the spread displayed before a trade may differ from the spread at execution. Some brokers publish average spreads over a period, but those figures are historical and not guaranteed.
Worked example
A trader buys 100,000 units of a currency pair quoted with a floating spread. The bid is 1.1050 and the ask is 1.1052, giving a spread of 0.0002, or 2 pips. Later, during a news release, the bid is 1.1050 and the ask is 1.1056, giving a spread of 0.0006, or 6 pips.
The example shows that the same trade can incur a higher spread cost when the market widens. The exact pip value depends on the quote currency and the account denomination.
Practical considerations
Floating spreads are common in accounts that pass market pricing directly to the client, often described as ECN or STP models. In such accounts, the broker may charge a separate commission instead of marking up the spread. The balance between spread and commission varies by broker, instrument and account type.
Traders should check whether a quoted spread is typical, average or minimum, and whether it applies during specific sessions. A floating spread can be very tight in liquid conditions and very wide around rollover or major announcements, so risk calculations based on a single spread figure may understate costs.
Often confused with
- fixed spread
- A fixed spread is held at a constant number of pips by the broker, whereas a floating spread changes with market conditions; the visible sign is whether the quoted spread stays the same during volatile periods or widens.
- spread
- The spread is the general difference between bid and ask, while a floating spread is specifically one that varies; the visible sign is whether the term is used generically or to emphasise variability.
- forex spread
- A forex spread is the bid-ask difference in a currency pair, which may be fixed or floating; the visible sign is the mention of a currency pair rather than the pricing mechanism.
- good spread
- A good spread is a subjective judgement about a tight or favourable quote, whereas a floating spread is a factual description of variability; the visible sign is whether the term evaluates the cost or describes how it is set.