Bid, ask and spread explained
Learn how the bid and ask prices work in trading and why the spread between them matters.
* Trading is risky. Your capital is at risk.
Key takeaways
The 'Bid' price is the price a trader is willing to sell a currency pair for
The 'Ask' price is the price a trader will pay to buy a currency pair
The 'spread' (the difference between ask and bid) represents the cost of the trade
Understanding bid and ask prices is essential for every trader.
These concepts shape how trades are executed, as well as the costs of making the trade. In this guide, we'll go over what bid and ask prices are, as well as how this impacts spread.
What is bid and ask price?
The bid price is the price a forex trader is willing to sell a currency pair for. Ask price is the price a trader will buy a currency pair at. Both of these prices are given in real-time and are constantly updating.
For example, the British pound against the US dollar has a bid price of 1.20720, that’s the price a trader wants to sell the GBPUSD. A seller who thinks a currency will decline, might sell at the bid price to take advantage of the fall.
If the British pound against the US dollar has an ask price of 1.20740, that’s the price a trader wants to pay to buy the currency pair.
The difference between the ask and the bid price is the spread.
What is spread?
A spread is the difference between the ask price and the bid price. In other words, it is the cost of trading.
For example, if the Euro to US dollar is trading with an ask price of 1.14010 and a bid price of 1.14000, then the spread will be the ask minus the bid price. In this case, 0.0001. The spread of 0.0001 is equal to one pip.
Spreads are calculated in the same way for yen-based currencies like USDJPY. If the yen to the US dollar is trading with an ask price of 120.42 and a bid price of 120.40, then the spread will be 0.02 (120.42 – 120.40). This is equal to 2 pips.
Why is the bid/ask spread important in forex?
The spread is the cost of the forex transaction, and you’ll want to determine if that cost suits your trading style. For example, if you make many short-term trades, a wide spread could leave you with little profit.
What is the bid/ask spread formula?
To calculate the spread as a percentage, subtract the bid price from the ask price, divide the answer by the ask price, and then multiply the result by 100.
Here's a worked example of the bid/ask formula.
What is a ‘tight spread’ in forex trading?
A tight spread – also called a narrow spread – is when the difference between the ask price and the bid price is small.
Are tight spreads good for forex traders?
The tighter the spread, the sooner the price of the currency pair might move beyond the spread — so you’re more likely to make a gain. Plus, the cost of the trade is lower.
Why do Bid-Ask spreads narrow or widen?
The spread is mostly dictated by liquidity levels – how many people are involved in trading a currency pair. Higher activity in the market means a narrower spread, lower activity means a wider spread.
What is a floating spread?
A floating (or variable) spread is when the difference between the Ask and Bid prices fluctuates. This is usually due to market factors such as supply, demand and the amount of total trading activity.
Bid and ask price in practice
OK, so as we've covered the Bid price is the price a forex trader is willing to sell a currency pair for.
The Ask price is the price a trader is willing to buy a currency pair for.
The Market Watch window displays the Bid and Ask price in real time for each financial instrument. Additionally, the Bid price is displayed as a horizontal grey line in the Chart Area of the Client Terminal.
By adding a check mark next to the ‘Show Ask’ line in the Common tab of the Properties window, a red Ask line will also be displayed in the Chart Area.
Example of placing a sell order
When a trader places a Sell order, the trade will be executed at the Bid Price. Any profit will be calculated at the Ask price. The same is true for Stop Loss. For example, if a trader opens a sell position at 1.17744 with Take Profit at 1.17700 and Stop Loss at 1.17800 then the corresponding Bid/Ask prices apply:
When selling, the ask price has to reach the Take Profit or the Stop Loss price for the position to close. Depending on which price reaches it first, you will either profit or lose.
Example of placing a buy order
Conversely, if a trader decides to place a Buy order, then the trade will be executed at the Ask price. Any profit will be calculated at the Bid price. The same is true for Stop Loss. For example, if a trader opens a buy position at 1.17797 with Take Profit at 1.17848 and Stop Loss at 1.17786, then the corresponding Bid/Ask prices apply:
When buying, the bid price has to reach the Take Profit or the Stop Loss price for the position to close. Depending on which price it reaches first, you will either profit or lose.
Frequently asked questions
In forex trading, every currency pair has two prices: the bid price and the ask price. Understanding the difference is your first step to navigating the markets.
- The bid price is the price at which you can sell the base currency. Think of it as the price a broker is "bidding" to buy it from you.
- The ask price is the price at which you can buy the base currency. This is the price a broker is "asking" for if you want to purchase it.
You'll notice the ask price is always slightly higher than the bid price. This difference is known as the spread, which is how brokers make a profit. When you open a trade, you'll always buy at the higher ask price and sell at the lower bid price.
Assessing the ask bid spread is a vital skill in stock trading that helps you understand a stock's cost and market interest. It's simpler than it sounds.
First, find the 'ask' price (the price you can buy the stock for) and the 'bid' price (the price you can sell it for). The spread is simply the difference between these two figures.
- A tight (small) spread usually means the stock has high liquidity. Lots of people are actively buying and selling it, which makes it easier to trade at a predictable price.
- A wide (large) spread often points to lower liquidity. Fewer people are trading the stock, which can make it more expensive to buy and sell.
For a beginner, sticking to stocks with tighter spreads is often a good strategy as you start your trading journey.
In forex trading, the spread is simply the difference between the buying (ask) price and the selling (bid) price of a currency pair. It's a fundamental concept and represents the main cost of placing a trade.
Think of it this way:
- You always buy a currency at the higher ask price.
- You always sell a currency at the lower bid price.
This small difference, known as the bid-ask spread, is how most brokers make their profit. When you open a new trade, it will initially show a small loss equal to the value of the spread. For a trade to become profitable, the market price needs to move in your favour by an amount greater than the spread.
A "tight" or small spread is generally better for traders as it means the cost of trading is lower.
The bottom line
Mastering the basics of bid and ask prices is your launchpad for navigating the forex markets with confidence. When you truly understand how spreads affect your trading costs and how your orders are filled, you're not just learning theory, you're building a powerful foundation for every trade you make.
This knowledge is the key to managing risk effectively and making smarter, more informed decisions. It's how you move from simply placing trades to taking control of your financial journey, turning market noise into clear opportunities.