Every forex quote shows two prices: the bid and the ask. Understanding these prices is fundamental to trading because they determine your entry and exit costs. The difference between them—the spread—is your primary trading expense.
What is the Bid Price?
The bid price is the price at which you can SELL the base currency. It's what buyers in the market are willing to pay.
Example: EUR/USD shows 1.1000/1.1002
- The bid is 1.1000
- If you sell EUR/USD, you get 1.1000
Think of it as: "What will someone BID to buy from me?"
What is the Ask Price?
The ask price (also called the offer) is the price at which you can BUY the base currency. It's what sellers want to receive.
Example: EUR/USD shows 1.1000/1.1002
- The ask is 1.1002
- If you buy EUR/USD, you pay 1.1002
Think of it as: "What are sellers ASKING for?"
The Spread
The spread is the difference between bid and ask:
Spread = Ask Price - Bid PriceIn our example: 1.1002 - 1.1000 = 0.0002 = 2 pips
This 2-pip spread is effectively the cost of entering a trade.
How Bid/Ask Affects Your Trades
When You Buy (Go Long)
- You enter at the ASK price (higher)
- To profit, price must rise above your entry
- You exit at the BID price
- You need the bid to exceed your original ask price
When You Sell (Go Short)
- You enter at the BID price (lower)
- To profit, price must fall below your entry
- You exit at the ASK price
- You need the ask to drop below your original bid price
Instant Loss on Entry
When you open any trade, you're immediately at a small loss equal to the spread:
Example - Buying EUR/USD:
- You buy at ask: 1.1002
- Current bid: 1.1000
- If you close immediately, you sell at bid: 1.1000
- Loss: 2 pips (the spread)
The market must move 2 pips in your favor just to break even.
Reading Forex Quotes
Quotes are displayed as: BID/ASK or BID-ASK
EUR/USD: 1.10000/1.10020
- First number (1.10000) = Bid (sell price)
- Second number (1.10020) = Ask (buy price)
- Spread = 2 pips
Some platforms show: EUR/USD: 1.10010 (spread: 2)
The displayed price is mid-market, with spread noted separately.
Why There's Always a Spread
The spread exists because:
Market Makers Need Profit: Brokers and liquidity providers earn money from the spread.
Risk Compensation: The spread compensates for the risk of holding inventory.
Bid-Ask Imbalance: Different traders want to buy and sell at different prices.
Operating Costs: Brokers have costs to cover.
A zero-spread market doesn't exist in practice.
Factors Affecting Bid-Ask Spread
Currency Pair
| Pair Type | Typical Spread |
|---|---|
| EUR/USD | 0.5-2 pips |
| USD/JPY | 0.5-2 pips |
| GBP/USD | 1-3 pips |
| EUR/GBP | 1-3 pips |
| USD/ZAR | 20-100 pips |
Major pairs have tighter spreads due to higher liquidity.
Market Conditions
- Normal conditions: Tight spreads
- News releases: Spreads widen
- Low liquidity: Spreads widen
- High volatility: Spreads widen
Time of Day
- Session overlaps: Tightest spreads
- Off-hours: Wider spreads
- Weekend gaps: Can see extreme spreads on open
Practical Tips
Check Spreads Before Trading: Know your costs, especially for exotic pairs.
Trade During Active Hours: Get better spreads during London/New York overlap.
Factor Spreads into Profit Targets: A 10-pip target with a 3-pip spread means you need 13 pips of movement.
Watch for Spread Widening: During news, your stop loss might trigger due to spread expansion, not actual price movement.
Compare Broker Spreads: Different brokers offer different spreads on the same pairs.
Key Takeaways
- Bid is the price you can sell at (lower price)
- Ask is the price you can buy at (higher price)
- The spread (ask minus bid) is your trading cost
- Every trade starts at a small loss equal to the spread
- Major pairs have tighter spreads than exotic pairs
- Spreads widen during news and low-liquidity periods
What's Next?
Learn about slippage in forex and how it can affect your trade execution beyond the visible spread.
This article is for educational purposes only and does not constitute financial advice.