The spread is the difference between the price a broker will sell you an asset for and the price they will buy it back — it is one of the main ways brokers earn money on every trade. Most Australian CFD and forex brokers apply a spread automatically, so you pay it the moment a position opens, before the market moves a single pip in your favour.
How Spread Works — A Practical Example
Say you want to trade the AUD/USD currency pair. Your broker quotes a buy (ask) price of 0.6502 and a sell (bid) price of 0.6500. The spread is 2 pips — the gap between those two numbers. On a standard lot of 100,000 units, each pip is worth roughly A$13–14, so a 2-pip spread costs you about A$26–28 to enter the trade.
Now consider the ASX 200 index CFD. A broker might quote a bid of 7,750 and an ask of 7,752 — a 2-point spread. If your position is worth A$10,000 and each index point moves your account by A$1, you are already A$2 down the moment you click buy. The market must move at least 2 points in your favour just for you to break even.
Spreads are not fixed. They tend to widen during low-liquidity periods — overnight sessions, major news releases like the US Federal Reserve rate decision, or around the ASX open — meaning the same trade can cost you noticeably more at the wrong time of day.
Why Spread Matters for Australian Traders
Spread is a hidden transaction cost that compounds quickly for active traders. A scalper placing 20 trades a day on AUD/USD at a 2-pip spread pays the equivalent of 40 pips daily just to enter and exit positions — before any profit or loss from market movement. Over a month, that adds up to more than most traders realise when they first open an account.
ASIC-licensed brokers are required to clearly disclose their pricing, including whether spreads are fixed or variable. Under ASIC’s product disclosure statement (PDS) rules, a broker must explain all costs before you fund an account. If a broker advertises “zero commission” trading, the spread is almost always how they recoup revenue — sometimes making it wider than a broker that charges a separate commission. Always read the PDS carefully.
When comparing brokers, tighter spreads directly improve your trading edge. A broker offering 0.0-pip raw spreads plus a small commission (common among ECN-style brokers popular with Australian traders) can be cheaper than a no-commission broker with a 1.5-pip marked-up spread, depending on your trade frequency and position size. Understanding spread helps you make that comparison honestly. You can also explore how spread interacts with leverage in trading — because leverage amplifies both gains and the effective cost of each spread paid.
Spread vs Commission — What’s the Difference?
Spread is the built-in price gap between buy and sell quotes, while a commission is a separate flat or per-lot fee charged by the broker on top of the market price. Some brokers use one, some use both, and some advertise zero commission but widen the spread to compensate. A raw-spread account might show a 0.0-pip spread on EUR/USD but charge A$3.50 per side in commission, while a standard account charges no commission but quotes a 1.2-pip spread — the total cost could be similar or very different depending on your trade size. For most Australian traders, total cost per trade (spread plus commission combined) is the more important factor to check.
What to Check When Comparing Brokers
- Average spread on your key markets: Look for published average spreads on the instruments you actually trade — AUD/USD, ASX 200, gold (XAU/USD) — not just the minimum spread advertised in headlines.
- Fixed vs variable spreads: Variable spreads can drop very low during liquid sessions but blow out during news events. Fixed spreads are predictable but are often wider on average. Match the spread type to your trading style.
- Raw-spread vs standard accounts: Many ASIC-licensed brokers like IC Markets offer both account types — compare the all-in cost (spread + commission) across both before choosing.
- Spread during volatility: Ask or check reviews for how wide spreads get during major news releases. A broker with a tight average spread but extreme widening during volatility can be costly for news traders.
- Transparency and PDS disclosure: ASIC requires brokers to disclose spread methodology in their PDS. If a broker’s pricing page is vague or hard to find, treat that as a red flag.
See our picks for the best forex brokers in Australia — all ASIC-licensed, all live-tested by our team.
Understanding spread also connects directly to related concepts like the pip — the unit used to measure spread on forex pairs — and margin, which determines how much capital you need to open a leveraged position in the first place.
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