Forex market trades one currency for another. For this reason, the currencies are expressed in terms of their prices with respect to other currencies. For convenience, currencies are usually quoted in pairs, like USD/CAD. The first one is called the base currency and the second as the quote currency i.e. (base/quote).
Spread is the difference between the purchase and sale price. It is the difference between the selling price and the price the market maker is ready to pay for the same currency. That is, if you buy a currency and then sell it before the price has changed you will lose money because of the spread. This is because the bid price is always lower than the ask price. The spread is used by Forex brokers to make money on every Forex trade placed through their network. For example, if a Forex broker is paying a price of 1.500 for buying or selling, he will allow you to buy the currency for 1.501 or sell it for 1.499. The spread always stays near the actual price that the Forex broker is paying. So you get respective ends of it when buying or selling. By the closure time of the spread, you will have paid the spread amount.
Brokers have two spread versions, fixed and floating. The fixed spread has a constant difference between a Forex rate of purchase and sale, independent of market situation. While the floating spread varies. Low Spreads is the difference between the rates at which a currency is bought or sold. The difference helps the brokers make money. Investors profit in Forex markets since the variation in spread isn't large as compared to banks which experience larger variations.
How is spread calculated when trading in the Forex market?
Forex quotes have bid and ask prices as in equity markets. The bid is the price at which the Forex market maker buys the base currency in exchange for the quote currency. And the ask price is the price at which the Forex market sells the base currency in exchange for the quote currency. Forex prices always have five numbers.