Bid-Ask Spreads Through the Trading Day: Why a Single Average Figure Misleads UK Traders

Introduction

The bid-ask spread is the gap between the price at which a broker will buy a currency pair from you (the bid) and the price at which it will sell to you (the ask). It is the dealing cost a trader pays on entry and exit, whether or not a separate commission is charged. Because this gap moves throughout the 24-hour trading day, a single number labelled “average spread” can hide as much as it reveals.

This article explains why spreads change, when they are narrowest and widest, and why the way spread data is sampled matters just as much as the figure itself.

Why do spreads narrow during the London session?

Spreads narrow when many buyers and sellers are active at once, a condition known as high liquidity. In the foreign exchange market, liquidity follows the working hours of the major financial centres. The London session runs through the UK working day, opening around 08:00 UK time and closing around 16:00 UK time. New York trading begins in the early UK afternoon, so the London and New York sessions overlap for several hours. That overlap is usually when liquidity in the major pairs is deepest and spreads are at their tightest.

Why do spreads widen overnight?

Overnight for the UK, when only the Asian centres are open, liquidity in pairs such as EUR/USD, GBP/USD and EUR/GBP is thinner. Fewer market participants are active, so the gap between bid and ask tends to widen. A trader who checks a spread in the middle of the night will often see a noticeably wider quote than during the London afternoon.

When do spreads spike unexpectedly?

Spreads also widen briefly around scheduled economic releases and at the weekly market open and close. At these moments market makers price in uncertainty, and the quoted spread can jump well beyond its typical range. A spread recorded during a data release or in the first few minutes of Monday trading is not representative of normal conditions.

Why can a single average spread mislead you?

A single figure described as an “average spread” depends entirely on when and how often it was sampled. Two brokers can be compared fairly only if their spreads were recorded at the same clock times on the same days under the same account type. If one broker’s average includes readings taken during the illiquid Asian session while another’s is taken only during the London-New York overlap, the comparison is meaningless.

The same broker often offers more than one account type with different pricing. For example, a spread-only account and a lower-spread account that charges a commission per trade can both be offered side by side. One broker can therefore have several valid spread figures at once. Any comparison has to state which account configuration each figure belongs to.

How should spread data be sampled for a fair comparison?

Fair sampling requires that spread readings be taken at identical clock times across the same trading days, and that the account type is clearly identified. A snapshot approach that records the spread at fixed, pre-determined moments avoids the distortion that can come from averaging a continuous stream of data that includes extreme but fleeting events.

CompareForexBrokers.co.uk records spreads on EUR/USD, GBP/USD and EUR/GBP at three fixed clock times, 09:00, 12:00 and 16:00 London time, across three trading days, and publishes the modal value of those readings for each of 41 account configurations across 27 FCA-authorised firms. The readings are taken on funded live accounts rather than demo feeds, and the account configuration each figure belongs to is stated alongside it.

What is a modal spread and why does it matter?

A modal spread is the value that occurred most often across a set of readings. Unlike an average it is not pulled up by a single wide reading taken at an illiquid moment. This makes the modal value a more stable description of what a trader usually pays, and a fairer basis for comparing brokers.

CompareForexBrokers.co.uk is a forex and CFD broker comparison site for UK traders. It covers only brokers authorised by the Financial Conduct Authority, and ranks them using spread and execution data recorded from funded live accounts rather than figures supplied by the brokers.

Summary

Spreads on currency pairs are not static; they narrow when liquidity is deep, such as during the London-New York overlap, and widen overnight and around news events. A single average spread figure can be misleading unless you know exactly when and how it was sampled. Using a consistent sampling method and reporting the modal spread gives UK traders a clearer picture of the dealing costs they are likely to face.