Let’s take a closer look at the important trading concepts known as “bid” and “ask” prices.
This guide will break down what bid and ask prices really mean and give clear examples to help new traders understand how these prices affect buying and selling in the market.
Ready to understand it better? Let’s begin!
A Simple Market Analogy
Imagine you’re visiting a busy farmers’ market and you see a basket of juicy strawberries you’d love to buy.
You approach the seller and ask, “How much for these berries?”
The seller says, “Five dollars.”
You think for a moment and say, “Will you take four dollars?”
The seller smiles but sticks to his original price of five dollars.
What just happened is a great example of how bid and ask prices work in trading.
In this case:
- The seller’s price (five dollars) is the ask price – the price at which they’re willing to sell.
- Your offer (four dollars) is the bid price – the price you’re willing to pay.
This kind of negotiation is exactly what happens in trading – only it’s all happening digitally and much faster.
What Are Bid and Ask Prices in Forex?
In the forex market, every currency quote has two sides: the bid and the ask.
Take this currency pair quote as an example:
EUR/USD = 1.10252 / 1.10264
Here’s what it means:
- Bid Price: 1.10252
- Ask Price: 1.10264
These prices reflect how much a broker is willing to buy or sell a currency for.
Who Sets These Prices?
It’s important to remember that these prices come from the broker’s perspective, not the trader’s.
- If you want to buy a currency, you’ll have to pay the ask price – this is the price the broker is asking for.
- If you want to sell, you’ll receive the bid price – this is what the broker is offering to pay.
In simple terms:
- The ask is the higher price – you buy at this price.
- The bid is the lower price – you sell at this price.
So, if you’re buying EUR/USD, you’ll be paying 1.10264 (ask).
If you’re selling it, you’ll receive 1.10252 (bid).
To avoid confusion, most forex trading platforms use clearer terms like “Buy” and “Sell” instead of “Ask” and “Bid”.
What Is the Spread?
The spread is the small difference between the bid and the ask price.
It’s how brokers and dealers earn money on each transaction.
For example, in the quote above:
- Ask: 1.10264
- Bid: 1.10252
- Spread: 1.2 pips
No matter what market you’re trading—forex, stocks, crypto—you will always see a spread. It’s a normal part of how trading works.
Real-Life Example Using iPhones
Let’s say you’re in the business of buying and selling used iPhones.
A person named Kim contacts you wanting to sell her iPhone.
You offer to buy it from her for $1,000 — this is your bid price.
Kim accepts and sells the iPhone to you.
Now, you list the iPhone for sale online. Another customer, Kanye, sees it and wants to buy.
You tell him the price is $1,500 — this is your ask price.
Kanye agrees to the price and buys the phone.
Here’s the breakdown:
- You bought the iPhone at $1,000 (bid)
- You sold it at $1,500 (ask)
- Your profit is $500 — and that’s the spread
Just like this example, forex brokers buy at a lower price and sell at a higher price to make money from the difference.
The Role of the Trader and the Broker
In forex trading, when you place a trade with a broker, you are considered a price taker.
That means:
- You don’t buy directly from other traders.
- You are buying from or selling to a dealer (the broker).
This broker sets their own prices and includes a small markup — the spread — to earn a profit.
So when you “hit the bid” (meaning you sell at the bid price) or “lift the offer” (meaning you buy at the ask price), you are paying the spread.
This is why forex brokers are not exactly traditional “brokers” — they act more like dealers, setting prices and profiting from the spread.
Understanding how bid and ask prices work helps you make smarter decisions when entering or exiting trades.
By knowing how brokers quote prices and earn from spreads, you’ll be in a better position to manage your trading costs and improve your results.
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