Bid, Ask, and Spread Explained: The Basics of Every Trade

What Is the Bid Price?

The bid price is the highest price a buyer is willing to pay for an asset. On trading platforms, this is the price at which you can sell a currency pair.

What Is the Ask Price?

The ask price (also called the offer price) is the lowest price a seller is willing to accept. This is the price at which you can buy a currency pair.

What Is the Spread?

The spread is simply the difference between the bid and the ask.

• A tight spread (small difference) is common in highly liquid pairs like EUR/USD.
  
  

• A wide spread (larger difference) can occur in less liquid assets or during periods of high volatility.

Why the Spread Matters for Traders

• Trading Costs: The spread is part of the cost of entering and exiting a trade.
  
  

• Liquidity Signal: Tight spreads usually indicate higher liquidity and lower costs.

• Strategy Considerations: Short-term traders often prefer instruments with tighter spreads.

Example in Action

Let’s say EUR/USD shows:

• Bid: 1.1050
  
  

• Ask: 1.1052

• The spread here is 2 pips. If you buy at 1.1052, tthe price must rise by at least the spread before you can realize a profit.
  
  
  
  

Key Takeaway:
Knowing how bid, ask, and spread work helps you understand your true trading costs and evaluate which assets might be most suitable for your strategy.