The spread is the difference between the ask price (the price you buy at) and the bid price (the price you sell at) quoted in a decimal value called [pips] (or basis points).
Most currency pairs are quoted to the fourth decimal place. For example, if the EUR/USD rate is 1.2105/7, the spread, or difference, between the bid and ask price is 2 points or pips (1.2107 - 1.2105 = 0.0002).
Some trading platforms add an extra digit of [precision] quoting rates to the fifth decimal place (known as fractional pips or "pipettes"). For example, the EUR/USD rate could also be quoted as 1.21501/19, where the spread is equal to 1.8 pips (or 18 pipettes). This extra decimal can significantly reduce the difference between the buy and sell price of a currency pair, offering clients reduced overall trading costs and a greater ability to execute complex, and often automated, trading strategies.
In general, during non-standard trading hours such as weekends, spreads are widened to reflect illiquidity in the market. Likewise, during periods of high volatility, such as news events, spreads may be widened temporarily to respond to liquidity issues in the market.
Ultimately, forex prices today are dictated by the [forex] interbank market, where spreads are variable depending on current liquidity and ticket size.
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