The bid is where traders sell currency, and the ask is where they buy—simple as that. The difference between these two prices is the spread, which acts as an immediate hidden cost the moment any position opens. Major pairs like EUR/USD keep spreads tight because liquidity is high, while exotic pairs can charge traders substantially more. News events and low-volume periods make spreads balloon fast. That gap isn't just theoretical—it directly determines whether breaking even is even possible, and the mechanics behind why that happens matter more than most realize.
How does a trader in Lagos or Johannesburg actually know what price they're buying or selling at when they tap that button on their phone? It comes down to two numbers: the bid and the ask. The bid is what buyers are willing to pay. The ask is what sellers want to receive. Simple enough. But the difference between them—the spread—is where things get interesting.
When a trader in Nairobi opens a platform and sees a quote like EUR/USD 1.10252/1.10264, the left number is the bid, the right is the ask. Selling means taking the bid price. Buying means paying the ask. Every single trade, whether it's on a smartphone in Accra or a laptop in Cape Town, executes at one of these two prices. The platform might label them “Sell” and “Buy” to keep things less confusing. But make no mistake—these are the real gatekeepers of every transaction.
Every trade lives or dies at two prices—the bid you sell at and the ask you buy at.
The spread, that gap between bid and ask, isn't just decoration. It's a cost. A fee without being called a fee. Brokers get compensated through it, and traders pay it every time they enter and exit a position. Tighter spreads mean lower costs. Wider spreads mean the opposite. For someone trading frequently from Kampala or Casablanca, those pips add up fast. A five-pip spread on EUR/USD might seem harmless until it's repeated twenty times in a week. Market makers buy at the bid and sell at the ask, retaining the spread as their commission. Understanding the cost of executing trades is essential for calculating potential profitability before entering any position. The bid-ask spread directly impacts whether a trade becomes profitable, as the market must move in the trader's favor by at least the spread amount just to break even.
Liquidity controls the size of the spread. Major pairs like EUR/USD or GBP/USD? Tight spreads. Exotic pairs involving the South African rand or Nigerian naira? Wider. Much wider sometimes. And when trading volume drops—say during the African night when London and New York are closed—spreads balloon. The bid price is typically lower than the ask price, creating the spread that traders must overcome. The difference between prices serves as the primary way brokers earn revenue without charging explicit commissions on trades. These institutions ensure continuous price availability even when natural buyers and sellers aren't perfectly matched in the market.
News events do the same thing. A surprise rate decision from the South African Reserve Bank or political turbulence in Egypt can send spreads shooting upward within seconds.
Common Questions
Do African Forex Brokers Widen Spreads During Local Currency Volatility?
Yes, they do. African forex brokers—especially in South Africa, Nigeria, and Kenya—routinely widen spreads when local currencies like the naira, rand, or shilling go haywire. It's standard risk management. Volatility means uncertainty, and brokers aren't sitting ducks.
Some even widen spreads *before* the chaos hits, anticipating moves around news or economic shocks. Floating spreads are the norm here, so when liquidity dries up or currencies spike, those spreads balloon fast. No conspiracy. Just how the market works.
How Does Mobile Trading Affect Bid-Ask Spreads in African Markets?
Mobile trading has tightened bid-ask spreads across African markets—sometimes dramatically. More traders on phones means more liquidity, faster price discovery, and less room for brokers to pad their margins. Spreads have shrunk over 50% in some segments since the '90s.
But here's the catch: infrastructure gaps, patchy regulation, and fragmented liquidity pools limit the effect in rural or frontier regions. High-volume pairs like USD/ZAR benefit most. Low-volume pairs? Still wide as ever.
Are Spreads Wider for Nigerian Naira Pairs Than South African Rand?
Yes, spreads are markedly wider for Nigerian naira pairs than South African rand pairs.
NGN crosses typically see spreads exceeding 50–150 pips under normal conditions, while USD/ZAR usually sits between 10–40 pips.
The naira's exotic status, capital controls, and erratic exchange rate management create thin liquidity and nervous market makers.
The rand benefits from South Africa's open FX system and global participation.
NGN spreads can double or triple during disruptions—costly for any trader watching costs.
Do Local Brokers Offer Better Spreads Than Offshore Brokers for Africans?
No. Local African brokers typically offer spreads starting around 1.0–1.5 pips on major pairs, while top offshore brokers deliver raw spreads from 0.0–0.2 pips (plus commission) or 0.1–0.3 pips on standard accounts.
That's not even close. Offshore brokers tap deeper liquidity pools and multiple pricing providers.
Local brokers compensate with easier payments and regional compliance, but tighter spreads? Not their strong suit. The data's clear: offshore wins on cost.
Does Poor Internet Connectivity Increase Slippage Between Bid and Ask Prices?
Yes, poor internet connectivity directly increases slippage. When connections lag or drop, orders reach the broker after prices have already moved. That gap between clicking and executing? It costs real money. A hundred milliseconds of delay means stale prices and worse fills. African traders dealing with unstable ISPs, frequent outages, or slow mobile data face this constantly.
High volatility makes it worse—prices shift fast, connectivity lags behind, and slippage spikes. Wired connections and VPS setups help reduce the damage.
