"BID", "ASK", AND "SPREAD" IN FOREX

Base Currency

The first currency on the left is called "base currency"


Counter Curency

The second currency on the right is caled "counter Currency"


Ask

Ask price is the lowest price the broker will pay to sell the instrument.


Bid 

Bid price is the highest price the broker will pay to purchase the instrument.


Spread

The difference between the Ask price and Bid price is broker’s profit that is called spread.

What is a ‘spread’?


A spread is defined as the price difference between the buy and sell price of any currency pair.


To put it differently, the broker will quote two different prices for every currency pair that they offer, a price to buy at (the bid price) and a price to sell at (the ask price).


The bid price is the highest price the broker will pay to purchase the instrument, and the ask price is the lowest price the broker will pay to sell the instrument.


The ask price is greater than the bid price, and the difference between ask and bid price (or ‘spread’) is the broker’s profit.

Currency Pairs.png
Currency Pairs.png

On the EUR/USD quote above, the bid price at the given time is 1.13359, and the ask price is 1.13360. Therefore, the spread is calculated by;


ASK-BID=Spread


1.13360-1.13359=0.00001 (Spread equals one-tenth of a pip, which is called a pipette)


It is important to know that spreads are variable, and they change from time to time according to the market conditions, volatility, and available liquidity.


However, some brokers may offer fixed spread accounts by charging commissions on each trade.