Understanding Forex Trading Prices

Defining Bid and Ask

  • Bid Price: The price a forex trader is willing to sell a currency pair for.
  • Ask Price: The price a trader is willing to buy a currency pair at.
[Image of Bid-Ask Spread diagram]

Both of these prices are given in real time and are constantly updating.

Illustrative Example (GBP/USD)

Consider the British pound against the US dollar (GBP/USD) pricing:

  1. If the Bid Price is 1.2072, this is the price a trader wants to sell the currency pair for. A seller who anticipates a decline in the currency's value might sell at the Bid price to take advantage of the expected fall.
  2. If the Ask Price is 1.2074, this is the price a trader wants to pay in order to buy the currency pair.

The Spread

The Spread is the difference between the Ask price and the Bid price.


Detailed Summary

Forex trading prices are defined by two real-time, constantly updating values: the Bid Price and the Ask Price. The Bid Price represents the highest price a trader is willing to sell a currency pair for, typically used by sellers anticipating a value decline. The Ask Price represents the lowest price a trader is willing to buy the pair at. The financial mechanism known as the Spread is simply the calculation of the difference between the Ask price and the Bid price.

Key Takeaways

  • 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.
  • Both Bid and Ask prices are given in real time and are constantly updating.
  • A seller anticipating a currency decline would sell at the Bid price (e.g., 1.2072 for GBP/USD).
  • The Spread is the numerical difference calculated by subtracting the Bid Price from the Ask Price (Ask - Bid).