In forex trading, the bid price is what a broker pays to buy your currency, while the ask price is what you pay to buy from the broker. The difference between these two prices is called the spread, and it represents the cost of every trade you make.
On the currency market, just as in physical exchange offices, there is always a difference between the buying and selling price. The price at which you can buy a currency is called the bid price, and the price at which you can sell is called the ask price. Forex operates exactly like a traditional exchange office, but with far greater currency selection and trading volumes.
Why Bid and Ask Prices Matter for Traders
Understanding bid and ask prices is essential for managing your trades effectively. You need to account for this price difference when setting stop-loss orders or planning profit targets. Many traders experience situations where the price appears to miss their take-profit level by just 1-2 pips—this happens because they don’t properly interpret bid and ask values.
Bid and Ask Prices: Points or Money?
For forex trading, it’s more convenient to measure spreads in pips rather than money. The value of one pip varies depending on the currency pair, trade size, leverage, and account type.
For example, if EUR/USD is quoted at 1.2805/1.2807, the bid price (where buyers are willing to buy euros) is 1.2805, and the ask price (where sellers are willing to sell euros) is 1.2807. The spread in this case equals 2 pips.
As a trader, you don’t need to worry about who buys your currency or who you sell it to—that’s your broker’s responsibility. What matters is that you always account for this price difference in every trade. This understanding is crucial when selecting currency pairs based on their spread characteristics.
How to Check Spread Size
You can find spread information in several ways:
- Check your broker’s trading conditions on their website
- Open MetaTrader and select
FAQ
What is the difference between bid and ask price in forex?
The bid price is what a broker pays to buy your currency, while the ask price is what you pay to buy from the broker. For example, in EUR/USD 1.0850/1.0853, the bid is 1.0850 and the ask is 1.0853. You buy at the ask and sell at the bid.
How do you calculate forex spread?
Spread is calculated by subtracting the bid price from the ask price. For example, if GBP/USD is quoted at 1.2500/1.2503, the spread is 0.0003, which equals 3 pips. Most major currency pairs measure one pip as 0.0001.
Why do spreads change in forex?
Spreads change based on market liquidity, trading session, volatility, global events, and broker type. Major currency pairs like EUR/USD typically have tight spreads of 0-2 pips during peak trading hours, while exotic pairs have wider spreads.
