To understand the concept of Spread, first you need to understand the Ask and Bid prices for each pair.
When placing a market order to buy, that is, when you place a Long order on a pair, your order will be executed at the Ask price. When you want to close the trade, it will be executed at the Bid price. If you place a Sell order, it works the opposite way — Short order is executed at the Bid price, and when closing, it is executed at the Ask price.
The difference between the Ask and Bid prices is called the Spread.
In the market, the spread is constantly fluctuating and tends to widen during periods of high volatility or low liquidity. Conversely, when market liquidity is high, spreads generally become narrower.
Events such as news releases, market rollovers, and political instability can cause market volatility, impact liquidity, and lead to increased spreads.
Understanding spread widening is a crucial aspect of trading, and every trader should know how to manage their trades during low-liquidity conditions. Since spread widening can also lead to slippage, it means that Stop-Loss orders are not guaranteed to execute at the requested price.