The bid and ask price is one of the most basic concepts in trading currencies, stocks, as well as other exchange-traded assets. First of all, any newcomer to the forex market faces them, so you need to clearly understand the meaning of these terms.
Forex bid and ask are indicators that characterize the currency quote, or rather, the prices at which you can sell or buy a currency.
Looking at the quote of any of the currency pairs, you see the following entry EUR / USD bid 1.2500 ask 1.2502, which says that the euro will be bought from you at $1.25, and this currency will be sold to you already at 1.2502, 2 points more expensive.
Bid (bid) – the purchase price at which you can sell the currency you have, or if it’s forex, just make a deal to sell. The value of this indicator is regulated by the offers of the base currency in the quote, the more willing to sell the currency, the lower the bid price.
If you made a deal to sell at a given price, you need to buy the currency even cheaper, only in this case you will make a profit as a result of this operation. Sell operations are also called short positions .
Ask (ask) – the selling price at which you buy a currency is always higher than the bid by the difference between buying and selling, called the spread (broker’s commission). All long positions are opened at this price, which will bring profit if the rate of the currency pair rises.
The difference between the bid and ask prices can range from 0.1 to 100 points, depending on the spread value, which is influenced by factors such as current currency liquidity and the base spread set by the broker. In order to make a profit, regardless of the direction of the operation, the price must travel a distance greater than the broker’s commission, only in this case your transaction will have a positive result.
In addition to Forex, this concept can be encountered at any exchange office, banks also buy currency at the bid price, and sell it to customers at the ask price, while the spread here is more significant than on the exchange. Since transactions occur with cash, and it is required to cover the costs of its transportation and protection.
