Holographic Displays (HDs) provide 3D images with all natural depth cues via computer generated holograms (CGHs) implemented on spatial light modulators (SLMs). HDs are coherent light processing systems based on interference and diffraction, thus they generally use laser light. However, laser sources are relatively expensive, available only at some particular wavelengths and difficult to miniaturize. In addition, highly coherent nature of laser light makes some undesired visual effects quite evident, such as speckle noise, interference due to stray light or defects of optical components. On the other hand, LED sources are available in variety of wavelengths, has small die size, and no speckle artifact. However, their finite spatial size introduce some degree of spatial incoherence in an HD system and degrade image resolution, which is the subject of the study in this paper. Our theoretical analysis indicates that the amount of resolution loss depends on the distance between hologram and SLM image planes. For some special configurations, the source size has no effect at all. We also performed experiments with different configurations using lasers and LEDs with different emission areas that vary from 50 μm to 200 μm, and determined Contrast Transfer Function (CTF) curves which agree well with our theoretical model. The results show that it is possible to find configurations where LEDs combined with pinholes almost preserve natural resolution limit of human eye while keeping the loss in light efficiency within tolerable limits.