It is the difference between BUY and SELL, or BID and ASK. In other words,
this is the difference between the market maker's "selling" price (to its
clients) and the price the market maker "buys" it from its clients.
If an investor buys a currency and immediately sells it (and thus there is no
change in the rate of exchange), the investor will lose money. The reason for
this is “the spread”. At any given moment, the amount that will be received
in the counter currency when selling a unit of base currency will be lower
than the amount of counter currency which is required to purchase a unit of
base currency. For instance, the EUR/USD bid/ask currency rates at your
bank may be 1.2015/1.3015, representing a spread of 1,000 pips (percentage
in points; one pip = 0.0001). Such a rate is much higher than the bid/ask
currency rates that online Forex investors commonly encounter, such as
1.2015/1.2020, with a spread of 5 pips. In general, smaller spreads are better
for Forex investors since they require a smaller movement in exchange rates
in order to profit from a trade.
