Dealing spread forex: Complete Guide to Trading Costs & Strategies

A dealing spread in forex is the difference between the bid and ask price for a currency pair. This spread is set by a broker with a dealing desk and represents their main fee for executing your trade.

It's not just a technical term but a direct cost that affects every position you open. Understanding the dealing spread is essential for managing your trading costs and protecting your money.

This guide will break down this important concept completely. You will learn:

• The core mechanics of how a dealing spread works.
• The key difference between dealing desk and other broker models.
• How to calculate its real-world cost to your trades.
• Actionable strategies to navigate and manage dealing spreads effectively.

Anatomy of a Spread

To understand a dealing spread, we must first look at the parts of any price quote in the forex market. These elements make up your trading costs.

Core Components

The price you see for any currency pair is actually two different prices.

The Bid Price is what the broker will pay when buying the base currency from you. When you sell a currency pair, you get the bid price.

The Ask Price is what you pay the broker when buying the base currency. When you buy a currency pair, you pay the ask price. The ask is always higher than the bid.

The Spread is simply the gap between these two prices. This difference is how the broker makes money and is your cost of trading.

EUR/USD Example:

• Bid (Your Sell Price): 1.0750
• Ask (Your Buy Price): 1.0752
• The Spread: 2 pips

Enter the Dealing Desk

A dealing spread is the specific term for a spread quoted by a "Dealing Desk" broker, also known as a "Market Maker."

These brokers work differently than others. They don't just pass your order to a network of banks. Instead, they often take the opposite side of your trade, creating their own market for clients.

This is why they control the bid and ask prices they offer. The dealing spread pays them for taking on your trade's risk and for giving you constant liquidity, even for smaller trades.

Think of them like a currency exchange at an airport. They set their own rates to make transactions possible and profit from the difference.

Dealing Desk vs. NDD

The concept of a dealing spread exists because of a specific broker business model. To fully understand why it matters, you need to know how this model differs from its alternatives.

The Dealing Desk Model

A Dealing Desk broker creates the market for its clients. They set their own bid and ask prices, which makes up the dealing spread.

When you place a trade, the broker first tries to match it with an opposite order from another client. If no matching order exists, the broker takes the other side themselves.

This model often has fixed spreads, which may be wider than market spreads but offer predictability.

A potential conflict exists in this model. Since the broker might profit directly when clients lose money, their interests aren't always aligned with yours.

This model often appeals to beginners. The simple fixed-spread pricing with no separate fees is easy to understand and calculate.

The NDD Model

A No Dealing Desk broker acts as a bridge, not an opponent. They send client trades directly to liquidity providers like major banks in the interbank market.

This category includes ECN and STP brokers.

NDD brokers offer variable spreads that reflect live prices from their liquidity providers. These spreads are often much smaller than what dealing desks offer.

Instead of profiting from the spread, NDD brokers charge a separate, clear commission for each trade. This is their main source of income.

Because these brokers profit from trading volume through commissions, regardless of whether clients win or lose, the conflict of interest is mostly removed. These brokers want you to trade more, and successful traders tend to trade more.

This model is typically preferred by scalpers, high-volume traders, and professionals who want the smallest possible spreads and direct market access.

The True Cost

Many traders dismiss the spread as just a few small pips. This is a big mistake. We will now look at the real financial impact of the dealing spread on your trading account.

Cost of a Single Trade

Calculating the cost is simple, but its effects are serious. You need to know the spread, the pip value of the currency, and your position size.

The formula is: Spread (in pips) x Pip Value x Lot Size = Total Spread Cost.

Let's use a clear example to show this.

• Pair: GBP/USD
• Dealing Spread: 3 pips
• Position Size: 1 Standard Lot (100,000 units)
• Pip Value: About $10 per pip for a standard lot
• Calculation: 3 pips x $10/pip = $30

This $30 is the immediate cost you pay just to open the position. The moment your trade starts, your profit and loss begins at -$30. The market must move 3 pips in your favor just for you to break even.

The Hidden Drain

The real danger of the spread is its cumulative effect. A small cost, repeated over and over, becomes a big financial drain.

Let's imagine a moderately active day trader who makes five trades per day, using the $30 cost from our previous example.

• Daily Cost: 5 trades x $30/trade = $150
• Weekly Cost: $150 x 5 trading days = $750
• Monthly Cost: $750 x 4 weeks = $3,000

This $3,000 is the hurdle the trader must overcome each month just to break even. Before making any profit, their strategy must first generate $3,000 to cover the cost of the dealing spreads. This shows how trading costs directly reduce your potential gains.

The Psychological Impact

There is also a mental cost to "starting in the red" on every trade.

Opening a position and instantly seeing a negative balance can be unsettling, especially for new traders or when using larger positions. This initial loss can affect your decision-making.

It can create an urge to "just get back to breakeven," potentially causing you to exit a well-planned trade too early as soon as it shows a small profit.

On the other hand, it can also lead to holding onto a losing trade too long, hoping it will reverse and erase both the spread cost and the loss. Understanding this psychological pressure is part of mastering your trading environment.

Strategic Navigation

Just knowing the cost of a dealing spread isn't enough. Professional traders actively work to manage and minimize this cost. Here are practical strategies that go beyond just finding a low-spread broker.

Time Your Trades

Even "fixed" dealing spreads aren't always static. Brokers may widen them during times of low market liquidity or extreme volatility.

Spreads on EUR/USD, for example, will naturally be wider during the quiet Asian trading session than during the busy London-New York overlap.

The strategy is to align your trading with peak liquidity. Focus on trading major currency pairs during their most active, overlapping market sessions. This is when trading volume is highest and spreads are at their tightest.

Factor Spread into Risk

A common mistake is to calculate risk-to-reward based only on the distance to the stop loss. A professional includes the spread in the "risk" part of the equation.

If your analysis suggests a stop loss 20 pips away from your entry and the dealing spread is 3 pips, your actual risk on that trade is 23 pips. The market only needs to move 17 pips against you to trigger your 20-pip stop.

Therefore, your profit target must be adjusted to maintain a valid risk-reward ratio. To achieve a 1:2 ratio, your target must now be 46 pips away (23 pips of risk x 2), not the 40 pips you might have initially planned.

Understand News Behavior

Major economic news releases are dangerous for spreads. During high-impact events like the U.S. Non-Farm Payrolls report, liquidity temporarily disappears from the market.

In these moments, dealing spreads on major pairs can explode. A typical 2-pip spread on EUR/USD can widen to over 10, 15, or even 20 pips for a few minutes around the release.

The strategy here is defensive. Either avoid opening new positions right before and after a major news release, or if you must enter, use a limit order. A market order during such volatility can result in significant slippage and a much worse entry price than expected.

Compare All-In Costs

Don't be fooled by marketing claims like "zero commission trading." You must calculate the "all-in" cost of a trade to make a true comparison between broker models.

A dealing desk broker offering a 3-pip spread with no commission might seem cheaper than an ECN broker with a 0.5-pip spread plus a $5 round-turn commission per standard lot.

Do the math for a standard lot trade. The dealing desk cost is $30 (3 pips x $10). The ECN cost is $5 (0.5 pips x $10) + $5 commission, for a total of $10. In this common scenario, the "zero commission" model is three times more expensive.

The Final Verdict

Understanding the dealing spread forex is essential knowledge for trading. It moves you from simply placing trades to strategically managing your business as a trader. It's a cost that must be respected, calculated, and actively managed.

Recap of Learnings

Let's summarize the most important points from this guide.

• A dealing spread is the trading cost set by a market-making broker, representing the difference between their bid and ask prices.
• It is a product of the Dealing Desk model, which is fundamentally different from the NDD (ECN/STP) model in how trades are executed and priced.
• This spread is a direct, cumulative cost that has a significant impact on your long-term profitability.
• Active management through strategic timing, precise risk calculation, and news event awareness is critical for minimizing its impact.

Making the Right Choice

Whether a dealing spread is right for you depends on your trading profile.

For beginners, the simplicity and predictable costs offered by a reputable dealing desk broker can be a big advantage. It allows you to focus on learning strategy without the complexity of variable spreads and commissions.

For experienced, active, or high-volume traders, the fixed cost of a wider dealing spread can become a major obstacle to profitability. As your trading frequency and position sizes increase, an NDD model with raw spreads and a transparent commission structure often becomes far more cost-effective.

There is no single "best" model for every trader. The true mark of expertise is understanding the mechanics of the dealing spread in forex, calculating its precise impact on your bottom line, and selecting a trading environment that perfectly matches your personal strategy, frequency, and financial goals.