If you want to trade forex profitably, you must first understand the small numbers that make a big difference — spreads and pips.
These two elements define how brokers earn, how you calculate profit or loss, and how precise your entries and exits can be. Yet many traders jump into the market without fully grasping how they work.
Whether you trade manually or through a forex robot system, mastering spreads and pips gives you the clarity needed to make smarter, more consistent decisions.
What Are Pips in Forex?
A pip stands for “percentage in point” — the smallest unit of movement in a currency pair’s price.
For most pairs, one pip equals 0.0001, or one one-hundredth of a percent. For example:
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If EUR/USD moves from 1.1050 to 1.1051, it’s moved 1 pip.
For pairs involving the Japanese yen (JPY), one pip equals 0.01 because of different decimal conventions.
Understanding pips matters because they determine how much money you gain or lose on a trade. Every pip counts — literally.
Suggested reading: How to Read and Interpret Forex Charts
How to Calculate Pip Value
Pip value depends on three factors:
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The currency pair you’re trading.
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The size of your trade (lot size).
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The currency your account is denominated in.
For example, in a standard lot (100,000 units), one pip is usually worth $10.
In a mini lot (10,000 units), one pip equals $1, and in a micro lot (1,000 units), it equals $0.10.
Knowing pip value helps you manage risk precisely — you can calculate potential loss before entering a trade.
A forex robot system uses this same logic automatically, ensuring each trade aligns with your defined risk tolerance.
Read our [forex robot] review.
What Are Spreads in Forex?
The spread is the difference between the bid price (what buyers pay) and the ask price (what sellers receive).
It’s the hidden cost of every trade — essentially the broker’s commission.
For example, if EUR/USD has a bid of 1.1050 and an ask of 1.1052, the spread is 2 pips.
The tighter the spread, the cheaper it is to enter a trade.
Wider spreads make trading more expensive and are often seen during low liquidity or major news events.
Suggested reading: Understanding Forex Market Volatility
Fixed vs. Variable Spreads
There are two main types of spreads:
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Fixed spreads: Stay constant regardless of market conditions. Common with market maker brokers.
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Variable spreads: Fluctuate with supply, demand, and volatility. More common with ECN brokers.
Fixed spreads offer predictability but may be higher overall.
Variable spreads can be cheaper during quiet periods but expand rapidly during news or high volatility.
If you use a forex robot system, variable spreads are often preferable because they adjust naturally to market conditions — but only if your execution is lightning-fast.
Read our [forex robot] review.
How Spreads Affect Profit and Loss
Every trade begins slightly in the negative because of the spread. If the spread is 2 pips, the market must move at least 2 pips in your favor to break even.
The wider the spread, the harder it becomes to profit from small moves. This is why scalpers — who aim for tiny profits — always seek low-spread brokers.
Swing traders or position traders are less affected, as they target larger moves.
Understanding spreads helps you choose trading times and pairs that maximize profitability.
Suggested reading: How to Manage Risk in Forex Trading
Tight Spreads vs. Wide Spreads
Tight spreads indicate liquidity and stability — usually during major sessions (London and New York).
Wide spreads often signal volatility, low liquidity, or high-risk moments (like news releases or market opens).
Professional traders adapt:
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Trade tight-spread conditions for precision.
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Avoid wide spreads unless expecting huge moves.
A forex robot system can automatically avoid periods of excessive spreads by pausing trading until normal conditions return.
Read our [forex robot] review.
How Brokers Determine Spreads
Brokers derive spreads from liquidity providers (banks and institutions) or create them internally.
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ECN brokers pass raw spreads directly from the market, adding a small commission.
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Market makers create their own spreads and take the opposite side of trades.
Your choice of broker affects how much you pay per trade — and how quickly your orders are filled.
Smart traders test execution and spreads before committing real capital.
Suggested reading: The Best Timeframes for Different Forex Strategies
The Relationship Between Spreads and Volatility
During calm markets, spreads tighten.
During volatile events — like interest rate decisions or unexpected news — spreads widen sharply as liquidity dries up.
If you open trades during these times, you may experience slippage — entering or exiting at worse prices than expected.
Even the best forex robot system must account for this by adjusting trading frequency or widening stop losses during volatility spikes.
Read our [forex robot] review.
How Pips and Spreads Affect Scalping Strategies
Scalpers rely on precision. When aiming for small profits, even a one-pip difference can make or break performance.
Low spreads are essential for scalping success. Many scalping robots are programmed to trade only when spreads fall below a specific threshold.
A forex robot system designed for scalping constantly monitors spreads, entering only when the cost-to-reward ratio is favorable.
Suggested reading: Why Consistency Is Key in Forex Trading
How Pips Influence Stop Loss and Take Profit
When setting stop losses and take profits, pip calculation is crucial.
If your stop loss is too tight — say 5 pips — a small fluctuation can knock you out prematurely. Too wide, and you risk too much capital unnecessarily.
Traders define stops and targets based on volatility, timeframe, and pair behavior.
Automation simplifies this: a forex robot system adjusts stops dynamically according to pip and volatility data, keeping risk under control.
Read our [forex robot] review.
Common Mistakes Traders Make With Pips and Spreads
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Ignoring spreads when calculating profit potential.
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Overlooking pip value differences across currency pairs.
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Trading during low-liquidity hours with wide spreads.
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Using the wrong decimal precision when backtesting or automating strategies.
Avoiding these mistakes keeps your performance data realistic and prevents unnecessary losses.
Suggested reading: Common Forex Trading Mistakes Beginners Make
Using Automation to Manage Spreads and Pips
A forex robot system eliminates human error in pip and spread calculations.
It can:
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Skip trades when spreads exceed your limits.
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Adjust lot sizes based on pip value and account balance.
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Adapt stop losses dynamically during volatility spikes.
This automation ensures accuracy, efficiency, and consistency — all vital for long-term profitability.
Read our [forex robot] review.
Final Thoughts
Pips and spreads might seem small, but they form the foundation of forex trading mechanics.
Understanding them gives you control over costs, accuracy, and overall performance. Every successful trader — or forex robot system — depends on mastering these details.
In forex, the little numbers determine the big outcomes. Learn them, respect them, and use them to your advantage — because success begins one pip at a time.
Suggested reading: How to Build a Forex Trading Plan That Works