Bid and Ask Explained

Definitions

  • Bid Price: The price at which a forex trader is willing to sell a currency pair.
  • Ask Price: The price at which a forex trader is willing to buy a currency pair.

Display and Visualization

The Bid and Ask prices are displayed in real time for each financial instrument.

  • The primary display location is the Market Watch window.
  • In the chart area of the client's terminal:
    • The Bid Price is shown as a horizontal grey line.
    • The Ask Price is shown as a horizontal red line (activated via the "show ask line" option in the Properties window).

Order Execution Mechanics

A. Placing a Sell Order

When a trader places a Sell Order:

  1. The trade will be executed (opened) at the Bid Price.
  2. Any profit calculation, including Take Profit and Stop Loss, will be calculated using the Ask Price.

Example: If a trader opens a sell position at 1.17744 with Take Profit at 1.177 and Stop Loss at 1.178, the closing conditions are evaluated based on the Ask price.

B. Placing a Buy Order

Conversely, when a trader decides to place a Buy Order:

  1. The trade will be executed (opened) at the Ask Price.
  2. Any profit calculation, including Take Profit and Stop Loss, will be calculated using the Bid Price.

Example: If a trader opens a buy position at 1.17797 with Take Profit at 1.17848 and Stop Loss at 1.17786, the closing conditions are evaluated based on the Bid price.


Detailed Summary

This text explains the definitions, visualization, and execution mechanics of the Bid Price and Ask Price, particularly within the context of forex trading. The Bid Price is the rate at which a trader is willing to sell, while the Ask Price is the rate at which they are willing to buy. These prices are displayed in real time, visible in the Market Watch window and sometimes as lines on the chart (Bid as grey, Ask as red). Importantly, trade execution depends on the order type: Sell Orders open at the Bid Price but close/calculate profit using the Ask Price, whereas Buy Orders open at the Ask Price but close/calculate profit using the Bid Price.

Key Takeaways

  • The Bid Price is the price a trader is willing to sell a currency pair.
  • The Ask Price is the price a trader is willing to buy a currency pair.
  • Bid and Ask prices are displayed in real time, primarily in the Market Watch window.
  • On the chart, the Bid Price is typically shown as a grey horizontal line, and the Ask Price as a red horizontal line (if activated).
  • A Sell Order is opened (executed) at the Bid Price.
  • The profit calculation (Take Profit/Stop Loss) for a Sell Order uses the Ask Price.
  • A Buy Order is opened (executed) at the Ask Price.
  • The profit calculation (Take Profit/Stop Loss) for a Buy Order uses the Bid Price.