Bid Price — Used when selling a currency pair. It reflects how much of the quoted currency will be obtained if buying one unit of the base currency. Ask Price -Used when buying a currency pair. It reflects the amount of quoted currency that has to be paid in order to buy one unit of the base currency. Remember from the lesson on Forex currency pairs that the base currency is the one in front while the quote currency is the second.
The most important thing to remember is that the bid price is used for selling while the ask price is used when buying. At the end of the day all of these intricacies are taken care of for you by your broker. While the major currency pairs and even some crosses have decent spreads, some of the more exotic currency pairs can have wide spreads, creating a large deficit as soon as you enter a trade. Make no mistake though, the spread on some of the less-liquid currency pairs can be significant and should certainly be considered before taking a trade, even when trading the higher time frames.
We all know that the Forex market is a global market consisting of different trading sessions. These sessions are:. The bid ask spread for a currency pair can vary depending on the current trading session. For the most part the bid ask spread will be the lowest during the London and New York sessions as these carry the largest trading volume. However there is a three hour window that occurs immediately after the New York session closes and before Tokyo opens in which the spreads can considerable.
Contrary to what you may think when you begin exploring the forex market, a bid price is not the price you'll bid when you want to buy a currency pair. From the broker's perspective, when you're the potential buyer, the broker will ask for a little more than what he might be willing to bid if you were selling. In the given example, since you're interested in buying EUR, the base currency, you'll pay the ask , the broker's asking price, which is 3. If you were selling, you'd accept the broker's bid, which is 3.
If you find these terms initially confusing, it helps to remember that the terms bid and ask are from the broker's perspective, not yours. When you're buying, you'll pay what the broker's asking for the currency; when you're selling, you'll need to accept what the broker's bidding. The spread is simply the broker's commission on the trade.
A pip is a unit of measure, and it's the smallest unit of value in a forex currency quote. So, in the example. The first number, 1. Trading Forex Trading. By Full Bio Follow Linkedin. Follow Twitter. John Russell has written about forex trading for The Balance. Read The Balance's editorial policies. Reviewed by Full Bio. Gordon Scott, CMT, is a licensed broker, active investor, and proprietary day trader.
For the most part the bid ask spread will be the lowest during the London and New York sessions as these carry the largest trading volume. However there is a three hour window that occurs immediately after the New York session closes and before Tokyo opens in which the spreads can considerable. This is especially true for some of the currency crosses and exotic currency pairs but can also effect the major currency pairs.
In fact as a general rule you should always check the bid ask spread before entering a trade regardless of the current trading session. I hope this lesson has helped you to better understand the Forex bid ask spread as well as when to take extra care and watch for larger-than-usual spreads.
The spread is the difference between the bid and the ask price. In Forex, that spread is represented by pips. Lifetime Access. Ends November 30th! What Is the Bid and Ask in Forex? What is the bid in Forex? The bid is the price buyers are willing to pay for a market. What is the ask in Forex? The ask is the price sellers are willing to take for it.
The bid the price at which you can sell an asset is quoted as lower than the ask or offer , and the difference between the two is known as the spread. Forex trading is the simultaneous buying of one currency and selling another. When you trade in the forex Offer is the term used when one trader expresses an intention to buy an asset or financial instrument from Do you want to learn how to make all the money you just deposited in your trading account quickly vanish?
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