What is Bid Price and Ask Price in Forex Market
When you open the chart you will see two prices that are changing in time. If you do not see two prices it means you did not activate in settings to show you Ask price.
Please check how to activate it in this post: How To Setup Chart in Metatrader 4
In the image below I have shown what each price line you see on the chart is.
Image shows Ask price and Bid price at which you will buy or sell currency pair. Difference between those two prices is spread, a fee that the broker charges you in order to open an order for you on the Interbank market.
Ask Price in Forex Market
Price line above is the Ask line that tells you what the price is when you want to buy a trading pair. It means when you open a buy order you will pay at 1.12716 price.
How to explain to yourself how to read the Ask price in a logical way?
When you are in front of the chart you need to ask market:
- what is the price you will sell it to me, meaning what is the price I need to pay to get currency I want
Bid Price in Forex Market
Price line under the Ask line is the Bid price that tells you what the price is when you want to sell a trading pair. It means when you open a sell order you will pay at 1.12707 price.
How to explain to yourself how to read the Bid price in a logical way?
When you are in front of the chart you need to see what market says how much are they willing to pay to buy currency:
- what is the price you want to sell to the market, meaning what is the price you are able to sell currency
The Bid Price and Ask Price Difference
How is the Difference between the bid price ask price defined in Forex? It is defined as a spread. Those two prices are the price at which you will sell or buy the pair.
The Ask price is the price you will have when you open a buy order. But, the close price of that order will be set to Bid price.
Take a look into the last image above where I have open buy order on USDPLN.
Entry price for buy order is at 3.96825 and you expect the price will move up.
Broker takes a defined spread by the Ask-Bid difference, which is 20 pips, and sets the price at which the order will be when you want to close that order.
If you want to close that order you will close it with the Bid price. Why is the bid price?
It is because you are selling the pair now. First, you have an open Buy order and you bought the pair. Now you have that pair bought. If you want to close order it means you want to get rid of that pair from your portfolio.
To get rid of that pair you need to sell it. That means you will get the Bid price for selling.
This scenario of selling the pair is the same as if you would like to open a new order, SELL order. You would get the Bid price.
Difference between Bid price and Ask price defines the spread and also how much money you will lose if you open and close in the same order at the same price.
In the case of USDPLN, if you close the order at the price that is shown on the image, you would end up with the loss. The loss would be $50.43.
The Bid price and Ask price in the Forex market are the two prices you will see each time when you trade.
Two prices define what will be your entry price for sell and buy order. Your goal should be that the difference between these two prices is smaller as much as possible so you do not pay too high spread.
Maybe at the start Bid price and Ask price will not be easily understandable, but as you use them more often you will understand them more logically.
Read more: Forex Order Types