The Bid and Ask Price Explained
In forex trading, every currency pair has two prices: the bid price and the ask price.
What is the Bid Price?
The bid price is the price at which the market (or your broker) is willing to buy a currency pair from you. In other words, the bid price is the price you can sell at.
What is the Ask Price?
The ask price is the price at which the market (or your broker) is willing to sell a currency pair to you. In other words, the ask price is the price you can buy at.
The Spread
The difference between the bid and ask price is called the spread. The spread is essentially the cost of trading.
For example, if EUR/USD has a bid price of 1.1050 and an ask price of 1.1053, the spread is 3 pips.
Why Does This Matter?
When you open a trade, you always start at a slight loss because of the spread. Your trade needs to move in your favor by at least the size of the spread before you start making a profit.
Lower spreads mean lower trading costs, which is why many traders prefer brokers that offer tight spreads.
Key Points to Remember
- You sell at the bid price (the lower price)
- You buy at the ask price (the higher price)
- The spread = ask price – bid price
- Spreads can vary depending on market conditions and the currency pair