The bid-ask spread is the difference between the price at which a bank or dealer will buy a currency (the bid) and the price at which it will sell that same currency (the ask or offer), and it represents the primary way in which financial institutions earn revenue on foreign exchange transactions.

In the foreign exchange market, currency prices are always quoted in pairs. A dealer quoting GBP/USD, for example, will simultaneously offer two rates: the rate at which they are prepared to purchase sterling, and the rate at which they are prepared to sell it. This dual-quote convention exists because a dealer rarely knows in advance whether a counterparty wishes to buy or sell. The first figure in a quote is always the bid (the lower of the two); the second is always the ask (the higher). A corporate treasurer buying sterling from a bank, therefore, will always pay the ask rate — typically the less favourable of the two prices.

To take a concrete example: if GBP/USD is quoted at 1.3018–1.3027, the bank is willing to buy sterling at 1.3018 and sell it at 1.3027. A company needing to purchase sterling will pay 1.3027, while a company selling sterling will receive only 1.3018. The spread of 0.0009 (or 9 pips) is retained by the bank as revenue — without any explicit commission charge.

Why the spread matters for corporate treasury

For companies engaged in cross-border trade, the bid-ask spread is a real and recurring cost of doing business in foreign currencies. On large or frequent transactions, even a narrow spread compounds into a meaningful drag on margins. In liquid currency pairs such as EUR/USD or GBP/USD, spreads tend to be tight; in less-traded pairs or during periods of market volatility, they widen considerably — increasing the cost of transacting at precisely the moments when certainty matters most.

Beyond transaction costs, the spread is also relevant when companies seek to lock in a budget rate or evaluate the performance of their FX programme. A company that hedges its currency exposure using forward contracts will encounter a spread on those transactions too, since forward rates are derived from spot rates with the same bid-offer structure.

The spread in the context of FX automation

One often-overlooked benefit of automating FX workflows is the improved consistency of execution. Manual FX processes — where deals are placed individually, often reactively — tend to result in higher effective spreads due to suboptimal timing and fragmented transaction sizes. Systematic hedging approaches, by contrast, allow companies to transact more predictably and at better rates over time.

Companies looking to reduce the total cost of their FX activity — including the hidden cost embedded in bid-ask spreads — may benefit from exploring how Currency Management Automation can bring discipline and efficiency to the entire hedging cycle.

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