Before you understand what a spread is, you should first of all understand that in the foreign exchange market prices are represented as currency pairs or exchange rate quotation where the relative value of one currency unit is denominated in the units of another currency. An exchange rate, applied to a customer willing to purchase a quote currency is called BID. It is the highest price that a currency pair will be bought. And a price of quote currency selling is called ASK. It’s the lowest price that a currency pair will be offered for sale. BID is always lower than ASK. The difference between ASK and BID is called spread. It represents brokerage service costs and replaces transactions fees. Spread is traditionally denoted in pips – a percentage in point, meaning fourth decimal place in currency quotation.