Gaurav Learns about Bid and Ask Prices

Gaurav Learns about Bid and Ask Prices

The next meeting with my friend Gaurav took place in my office. When Gaurav entered my room, I was sitting in front of the computer, staring at the screen. You can guess that at that moment I was trading Forex and was in a panic cause my loss was gradually increasing. However, I was ready to continue familiarizing my friend with the Forex world.

-          Hi, my friend, this time I will tell you about Bid and Ask prices in Forex.

He looked at me amazed, trying to understand the meaning of the terms.

-          I will now explain everything to you, it is really simple. Look, the price at which you are ready to sell the currency is called Bid price and the price at which you buy the currency is Ask price.

-          Yes, I have grasped the main idea, Manoj, but could you bring an example just for clarity?

-          Yes, of course. Look, you open the terminal and see that the broker offers you the currency pair EURUSD with the Bid price of 1.30435 and the Ask price of 1.30404. So when you buy the base currency which in this case is the EUR you look at the price 1.30404 and when you sell, you look at the Bid price, i.e. 1.30435. So, always remember:

- YOU BUY AT ASK PRICE

 - YOU SELL AT BID PRICE

-          Everything is clear, but there is something that interests me. Why is there a difference between Bid and Ask prices?

-            Yes, I was just going to tell you about Spread. That difference is called Spread which is the profit of the broker. Every broker charges the spread which may be different for each currency pair; moreover it may be different for the same currency pair, depending on the market volatility. Hence, there are fixed and floating spreads. For example, IFC Markets offers low and fixed spreads, starting from 1.8 pips. As for pip, I will tell you about it the next time.

-          Ok, thank you very much for new information, my dear friend.