Like any financial market, trading Forex also involves the BID and ASK spread.
This is the difference in price at which the fore pair can be bought and sold.
Let’s take a closer look at these 2 terms.
BID price:
This term is used when you are selling a forex pair.
It reflects how much of the quoted currency will be obtained if buying one unit of the base currency.
ASK price:
This term is used when you buy a forex pair.
It reflects the amount of quoted currency that has to be paid in order to buy one unit of the base currency.
Remember that the BID price is always less than the ASK price.
And to explain all this in even simpler language is what the buyer is willing to pay for something and what the seller is willing to get to sell it.
The Spread / Bid and ask in forex trading.
In trading Forex you are seen as the price taker.
And the broker is then the price maker or in other words the market maker.
As we explained above.
For example: Suppose you have seen a very nice house and are seriously interested in buying it.
The seller is asking 375,000 euros for the house.
This means that the seller is willing to sell for the amount of 375,000 euros.
Okay you are interested but actually you are not willing to pay this entire amount and make an offer of 370,000 euros. Together with you, even more people can make an offer that may also be higher.
So the seller is free to wait for a better offer.
Well the Forex broker is just like the seller of the house, so you can apply these same concepts in forex trading.
And in short, the spread is the difference between the BID and ASK price.
I hope it’s a bit clear for you now.
And that you understand the terms Bid and Ask well.
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