When you are comfortable with the currency pair's concept, you are ready to think the composition of a forex quote. These forex quotes are usually two-sided. The two sides of forex quote are the ask and bid, which is can be called the offer and bid. The ask is the price a seller is willing to take for the currency; the bid is the price a seller is offering for a currency. The difference between the ask and bid number is called a spread. Spreads are quoted in pips, which are the smallest unit of difference between two currencies in the quote. For example, if the quote between GBP/USD at a given moment is 1.5354/6, the bid is 1.5353 and the ask is 1.5356, which makes the spread equal to 2 pips. If the quote is 1.53545/6, then the spread is equal to 1.5 pips.
The spread is the way for brokers make their money. Wider spreads will outcome in a higher asking price and a lower bid price. The result of this is you need to pay more when you buy and get less when you sell, making it more difficult to realize a profit. Brokers usually do not earn the full spread, especially when they protect client positions. The spread helps to reward the brokerage for the risk it assumes from the time it starts a client trade to when the broker's net exposure is protected.
Spreads affect the return on your trading strategy a lot. As a trader, your individual interest is buying low and selling high. Wider spreads means buying higher and having to sell lower. A half-pip spread does not sound like much, but it can mean the difference between a profitable trading strategy and one that is not.
The tighter the spread is the better things for you. Tight spreads are only significant when they are paired up with good execution. For example, when this is not happening is when your screen shows a tight spread, but your trade is filled a few pips in the wrong direction, is mysteriously rejected. At that time it is time for you to reconsider broker handling your forex quotes.