Bid/Ask Price and Quotes Explained 📝

Before understanding Bid/Ask, you must understand the structure of a currency pair.

Every forex quote involves two currencies in a specific order:

Base Currency (First Currency):

• The asset you are buying or selling
• Always equals 1 unit
• The "product" being traded

Quote Currency (Second Currency):

• The currency used to express the value
• Shows the price of 1 unit of Base
• The "payment currency"

EUR/USD = 1.0850

Translation:

• EUR = Base Currency (what you're trading)
• USD = Quote Currency (what you're paying with)
• 1.0850 = The exchange rate

In Plain English: "1 Euro costs 1.0850 US Dollars"

When you BUY EUR/USD:

• You buy EUR (Base Currency)
• You sell USD (Quote Currency)
• You believe EUR will strengthen vs. USD

When you SELL EUR/USD:

• You sell EUR (Base Currency)
• You buy USD (Quote Currency)
• You believe USD will strengthen vs. EUR

The Bid Price is the price at which the broker (or market maker/liquidity provider) is willing to buy the Base Currency from you.

Your Perspective: You want to SELL the Base Currency

Broker's Perspective: The broker will BUY from you at the Bid

The Price: Always the lower of the two quoted prices

EUR/USD Quote:

Bid: 1.0850  |  Ask: 1.0852

If you click "SELL":

• You sell 1 EUR for $1.0850
• Broker buys 1 EUR from you at $1.0850
• Your execution price: 1.0850 (the Bid)

Always Lower:

• Bid is always less than Ask
• This is how brokers make money (the spread)

Displayed on Charts:

• Most platforms show Bid price as the main line
• This is the "market price" you see
• Ask line is often hidden (but can be enabled)

Used for:

• Executing SELL market orders
• Closing BUY positions (you sell back to broker)
• Triggering Sell Stop orders
• Triggering Buy Limit orders

The Supply Side: Bid represents where supply (selling pressure) meets the market.

The Ask Price (sometimes called the Offer Price) is the price at which the broker is willing to sell the Base Currency to you.

Your Perspective: You want to BUY the Base Currency

Broker's Perspective: The broker will SELL to you at the Ask

The Price: Always the higher of the two quoted prices

EUR/USD Quote:

Bid: 1.0850  |  Ask: 1.0852

If you click "BUY":

• You buy 1 EUR for $1.0852
• Broker sells 1 EUR to you at $1.0852
• Your execution price: 1.0852 (the Ask)

Always Higher:

• Ask is always more than Bid
• The difference is the broker's profit (spread)

Not Usually Displayed:

• Most charts show only Bid price
• Ask line can be enabled in settings
• Sits 1-3 pips above Bid line

Used for:

• Executing BUY market orders
• Closing SELL positions (you buy back from broker)
• Triggering Buy Stop orders
• Triggering Sell Limit orders

The Demand Side: Ask represents where demand (buying pressure) meets the market.

The fundamental reason Bid and Ask prices are different is the Spread—the built-in transaction cost brokers charge to execute your trade.

Spread (pips) = Ask Price - Bid Price

Example 1: EUR/USD

Bid: 1.0850  |  Ask: 1.0852
Spread = 1.0852 - 1.0850 = 0.0002 = 2 pips

Example 2: GBP/USD

Bid: 1.2500  |  Ask: 1.2503
Spread = 1.2503 - 1.2500 = 0.0003 = 3 pips

Example 3: USD/JPY

Bid: 145.25  |  Ask: 145.28
Spread = 145.28 - 145.25 = 0.03 = 3 pips

The Brutal Reality:

When you BUY:

• Entry price: Ask (1.0852)
• Current market: Bid (1.0850)
• Immediate loss: 2 pips (the spread)
• Need price to rise 2 pips just to break even

When you SELL:

• Entry price: Bid (1.0850)
• To close (buy back): Ask (1.0852)
• Immediate loss: 2 pips (the spread)
• Need price to fall 2 pips just to break even

Example with Real Money (1.00 lot):

BUY EUR/USD:

• Entry: 1.0852 (Ask)
• Immediately after: Bid still at 1.0850
• Unrealized P/L: -$20 (2 pips × $10/pip)
• Break-even requires Bid to reach 1.0852 (Ask would be 1.0854)

This is why the spread is a COST, not just a number.

Scalpers (5-15 pip targets):

• Critical: Must have tight spreads (0.5-1.5 pips)
• Wide spread (5 pips) destroys profitability
• Prefer ECN accounts, major pairs, high-liquidity sessions

Day Traders (20-50 pip targets):

• Important: Prefer 1-3 pip spreads
• Wide spreads reduce profit potential
• Avoid exotic pairs

Swing Traders (100-300 pip targets):

• Less critical: 2-5 pip spread acceptable
• Targets are large enough to absorb spread cost
• Can trade during various sessions

Position Traders (500+ pip targets):

• Minimal concern: Even 10-pip spread is negligible
• Focus on execution quality over spread

Understanding Bid and Ask is critical for every aspect of trade execution, particularly when using different order types.

Market Orders execute instantly at the best available price.

BUY Market Order:

• Executes at Ask Price (you pay the higher price)
• Example: Ask at 1.0852 → You buy at 1.0852

SELL Market Order:

• Executes at Bid Price (you receive the lower price)
• Example: Bid at 1.0850 → You sell at 1.0850

Why This Matters:

• You always get the worse price (that's the spread cost)
• Broker always gets the better price (that's their profit)
• This is the cost of instant liquidity

Pending orders (Limit, Stop) must be set relative to the correct price line.

Order Type Reference Table:

Buy Limit Example:

Current Quote: Bid 1.0850 / Ask 1.0852

Your Order: Buy Limit at 1.0840

Trigger: When Bid price drops to 1.0840

• At that moment, Ask would be ~1.0842
• Your order executes at Ask: 1.0842

Sell Limit Example:

Current Quote: Bid 1.0850 / Ask 1.0852

Your Order: Sell Limit at 1.0870

Trigger: When Ask price rises to 1.0870

• At that moment, Bid would be ~1.0868
• Your order executes at Bid: 1.0868

Mistake 1: Using Wrong Price for Limits

• Sets Buy Limit based on Ask price (wrong)
• Should use Bid price for Buy Limit trigger
• Order never fills or fills at wrong level

Mistake 2: Not Accounting for Spread

• Sees support at 1.0800 on chart (Bid line)
• Places Buy Limit at exactly 1.0800
• Forgets Ask is 2 pips higher (1.0802)
• Actually buying at 1.0802, not 1.0800

Professional Solution: Always show both Bid and Ask lines on your chart. Set pending orders accounting for spread width.

Summary

The forex quote consists of two prices: the Bid Price (price for selling the Base Currency) and the Ask Price (price for buying the Base Currency).

Professional Understanding: The spread is the cost of instant liquidity. You pay it every time you enter a trade. Minimize this cost by trading major pairs during high-liquidity sessions (London/NY overlap) and avoiding news periods when spreads widen dramatically.

Frequently Asked Questions (FAQ)

Q1: Why do brokers always quote Bid/Ask prices, not just one price?

Brokers must quote two prices because they act as intermediaries (market makers or aggregating liquidity providers). They must simultaneously offer you:

• A price to sell at (Bid) - they're willing to buy from you
• A price to buy at (Ask) - they're willing to sell to you

The small difference (spread) is how they generate revenue and compensate for providing instant liquidity 24/5. This two-price system is how ALL markets work (stocks, futures, commodities).

Q2: Does the spread change during the day?

Yes, the spread is dynamic (except on fixed-spread accounts).

Variable Spread Behavior:

Tight Spreads (0.5-1.5 pips):

• London session (3 AM - 12 PM EST)
• New York session (8 AM - 5 PM EST)
• Overlap (8 AM - 12 PM EST): Tightest spreads
• High liquidity = tight spreads

Wide Spreads (2-5 pips):

• Asian session (low liquidity)
• Sundays (market opening)
• Late Friday (market closing)
• Holidays

Extremely Wide Spreads (10-50 pips):

• Major news releases (NFP, CPI, Fed)
• First 15-30 minutes after news
• Flash crashes or black swan events

Professional Strategy: Only trade during tight-spread periods (London/NY overlap) unless you're swing trading with large targets.

You now possess the foundational knowledge of how price is presented and executed in the forex market.

Action Item: Open your Demo Trading Account and ensure your platform is set to display both the Bid and Ask lines on your chart (Settings → Chart → Show Ask Line). Observe how these two lines separate and converge, especially during the low-liquidity Asian session versus the high-volatility London-New York overlap.

Proceed to Lesson 13: Understanding Leverage, Margin & Effective Leverage