Spread Indicator

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James Chen
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James Chen, CMT is an expert trader, investment adviser, and global market strategist.

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Updated October 19, 2022
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Samantha Silberstein
Sam Silberstein
Reviewed by Samantha Silberstein
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Samantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans.
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Katrina Avila Munichiello
Fact checked by Katrina Munichiello
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Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

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What Is a Spread Indicator?

A spread indicator is a measure that represents the difference between the bid and ask price of a security, currency, or asset. The spread indicator is typically used in a chart to graphically represent the spread at a glance, and is a popular tool among forex traders. The indicator, displayed as a curve, shows the direction of the spread as it relates to the bid and ask price. Usually, highly liquid currency pairs have lower spreads.

Understanding the Spread Indicator

Spreads are calculated metrics that often require that a trader manually determine the difference between bid and ask prices. For traders trying to capture small fluctuations in the spread, determining the spread requires handling quotes with a large number following the decimal. As a result, the spread indicator fluctuates over a very narrow range.

Widely traded ETFs such as the SPY and the QQQ have very tight spreads due to their popularity and liquidity. Whereas an asset such as an emerging market currency or an illiquid commodity contract will have a wide spread indicator. 

In forex, the EUR/USD and USD/JPY are the most liquid currency pairs and have the smallest spreads, and currency pairs such as the USD/THB (Thai bhat) and USD/RUB (Russian ruble) will exhibit the widest spreads. 

Traders are more likely to trade in currency pairs with small spreads because it costs less to enter and exit a trade.

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  1. Daily FX. "Major Currency Pairs." Accessed Jan. 20, 2021.