What Are Forex Spreads?
Forex spreads represent the difference between the bid and ask prices. This tiny differential is the hidden fee that traders often overlook, yet it shapes the profitability of every single trade. The tighter the spread, the less a trade needs to move in your favor to be profitable. Conversely, wide spreads? That’s like running a race with ankle weights.
In forex, brokers don’t charge commissions like your stock-trading app might—they earn from spreads. That means understanding spreads is not just helpful—it’s absolutely essential.
Bid vs Ask Price
Let’s break this down like a bar tab split between friends:
- Bid Price: What the market (or broker) is willing to pay for a currency pair. Essentially, this is the selling price.
- Ask Price: What the market (or broker) is asking you to pay to buy a currency pair.
If EUR/USD is quoted at 1.1050/1.1052, the spread is 2 pips. It may seem microscopic, but on large volumes, that difference adds up quickly.
What Influences Spread Size?
Several variables impact the size of spreads in the forex market:
- Liquidity: More traders = tighter spreads. Less activity? Spreads balloon.
- Market Volatility: Uncertainty or breaking news spikes spreads.
- Currency Pair Characteristics: Majors like EUR/USD often have tighter spreads; exotic pairs like USD/TRY? Not so much.
- Time of Day: Spreads are narrower during session overlaps and widen during quieter periods.
- Broker Type: ECN brokers vs market makers can display different spreads.
Why Do Forex Spreads Widen at 5PM?
End of the New York Trading Session
5PM EST is the witching hour for forex. It marks the official close of the New York trading session, and no major market is open. The hustle and bustle of the Big Apple fades, and liquidity evaporates like mist on a sunny day.
Low Liquidity Between Sessions
Liquidity is the lifeblood of tight spreads. At 5PM EST, traders from New York are logging off, while Tokyo hasn’t clocked in. This 1–2 hour gap is the forex version of a no-man’s land. Few participants mean thin volume, and thin volume = wider spreads.
Market Maker Risk Management
Market makers—those unseen hands ensuring smooth trade execution—aren’t running charities. When volume is low, they widen spreads to shield themselves from volatility and unexpected orders. It’s their version of insurance against the dark unknowns of the overnight markets.
Widening to Reflect Overnight Risk
Spreads widen at 5PM to account for overnight risk. Big news in Asia or Europe can blast through stop-losses placed before the Asian open. Market makers hedge by padding spreads to absorb potential shocks.
Limited Order Flow and Volatility
With fewer traders comes unpredictability. A single trade can move the market more than usual, increasing volatility and decreasing price stability. Brokers react by pushing spreads wider to protect themselves.
How Forex Market Hours Affect Spreads
Overlap Between Trading Sessions
The best time to trade is during overlaps—like when London and New York are both live. Volume is sky-high, spreads tighten, and execution is lightning fast.
The 5PM EST “Reset” Time
The forex market uses 5PM EST as the daily reset. It’s when positions are rolled over, new trading days are recorded, and swaps are applied. Brokers often widen spreads to protect against price shifts caused by these mechanical transitions.
Gaps Between New York Close and Asia Open
While the market is technically open 24/5, the gap between New York close and Tokyo open often results in irregular price action, slippage, and—yup—wider spreads.
Best and Worst Times to Trade Forex
Most Liquid Times
The sweet spot for traders is:
- London–New York overlap (8AM–12PM EST)
- London session (3AM–12PM EST)
- Early New York session (8AM–11AM EST)
Expect the tightest spreads and best trade execution.
Times to Avoid – Including 5PM
Here’s your trading red flag list:
- 5PM–7PM EST: Post-New York, pre-Tokyo = wide spreads.
- Sunday evening open: Gaps and high spreads.
- Major news events: CPI, NFP, central bank decisions.
Spread Variations by Session
| Session | Spread Behavior |
|---|---|
|
London |
Tight Spreads |
|
New York |
Tight until 5PM |
|
Sydney |
Wide Spreads |
|
Tokya |
Medium Spreads |
Most Volatile Currency Pairs Around 5PM
If you’re still determined to trade around 5PM, be wary of:
- GBP/JPY – High volatility, low liquidity
- EUR/AUD – Tricky cross pair, unpredictable at day’s end
- USD/CHF – Sensitive to European and US closes
- NZD/JPY – Spiky and illiquid post-New York
These pairs can give you fireworks—or heartbreak—when spreads widen.
How to Minimize the Impact of Widened Spreads
Avoiding Trades at Session Close
Seriously, don’t get cute with 5PM trades. If you must trade, either finish before 4:30PM EST or wait until Tokyo picks up steam.
Using Limit Orders and Wider Stops
Market orders during wide spreads? That’s like walking blindfolded on a tightrope. Use limit orders for precision, and wider stop-losses to avoid premature exits.
Choosing Low-Spread Brokers
Some brokers offer fixed spreads or minimal widening, even during off-hours. Look for:
- ECN brokers with tier-one liquidity
- Transparent pricing models
- Reviews from trusted trader communities
Conclusion
Understanding why forex spreads widen at 5PM is crucial for every trader. This small window of time packs a punch—it’s a blend of low liquidity, high risk, and market maker defense mechanisms. But knowledge is power. Now that you know what’s going on behind the scenes, you can time your trades smarter, pick better brokers, and avoid the trap of post-close spread widening. Because in forex, every pip counts—and every second, even at 5PM, can shape your success.
FAQ
Yes, unless you love risk and slippage. Spreads spike due to low liquidity, making this an expensive time to trade.
Because New York is closing and Asia hasn’t opened. The market loses its two biggest players temporarily.
Not exactly. Most do around 5PM, but the degree varies based on their liquidity providers and risk tolerance.
About the Author
Andrew Edwards is the co-founder of SecretsToTrading101 and has years of practical experience in online trading, prop firm evaluations and financial content review. He specialises in helping traders understand trading rules, challenge requirements and platform conditions so they can make informed decisions. Andrew oversees the accuracy of our prop firm guides and ensures all information is reviewed against current programme terms and risk standards.
