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Level 1 - Book 1 - Chapter 10

Understanding Bid, Ask & Spread

Understanding Bid, Ask, and Spread will help you understand how brokers execute trades and why trading costs are an important part of every strategy.

Estimated Reading Time: 12 - 15 Minutes

Back to Book 1 Overview

Introduction

Every trader notices something unusual after opening their very first Forex trade.

You click Buy.

The trade opens successfully.

But instead of showing $0.00 profit, it immediately shows a small floating loss.

Many beginners think something is wrong.

Nothing is wrong.

This happens because every Forex market has two prices, not one.

Understanding Bid, Ask, and Spread will help you understand how brokers execute trades and why trading costs are an important part of every strategy.

Understanding the Bid Price

The Bid Price is the highest price that buyers are currently willing to pay.

If you already own a currency pair and want to sell it, your trade will close at the Bid Price.

Think of it as:

Bid = Sell Price

Example

EUR/USD

Bid

1.18500

If you close your Buy trade, it will be sold at 1.18500.

Understanding the Ask Price

The Ask Price is the lowest price sellers are willing to accept.

When you open a Buy trade, you buy at the Ask Price.

Think of it as:

Ask = Buy Price

Example

EUR/USD

Ask

1.18520

If you open a Buy trade, your entry price is 1.18520.

What Is the Spread?

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

Formula:

Spread = Ask Price − Bid Price

Example

Bid	Ask
1.18500	1.18520

Spread:

0.00020 = 2 pips

This spread represents one of the costs of trading.

Why Does Every Trade Start Negative?

Imagine you buy EUR/USD.

Price	Value
Bid	1.18500
Ask	1.18520

Your Buy trade opens at 1.18520.

If you immediately close it, the broker buys it back at 1.18500.

That difference of 2 pips becomes your initial floating loss.

The market must first move enough to cover the spread before your trade becomes profitable.

Fixed vs Floating Spreads

Different brokers offer different spread models.

Fixed Spread	Floating Spread
Usually stays the same	Changes with market conditions
Predictable trading costs	Often lower during normal markets
May be wider overall	Can widen significantly during volatile events

Many ECN and Raw Spread accounts use floating spreads together with a separate commission.

Why Do Spreads Change?

Spreads usually become wider during periods of uncertainty or low liquidity.

Common situations include:

Major economic news releases
Interest rate announcements
Market opening and closing periods
Public holidays
Low trading activity
Unexpected geopolitical events

Professional traders often avoid opening new positions when spreads widen dramatically.

How Spread Affects Your Trading

Suppose two traders both make 20 pips on the same strategy.

Trader	Spread	Net Profit
Trader A	1 pip	19 pips
Trader B	4 pips	16 pips

Over hundreds of trades, even small differences in spread can have a significant impact on long-term performance.

Choosing the Right Broker

When comparing brokers, don’t focus only on low spreads.

Also consider:

Regulation
Order execution quality
Slippage
Trading commissions
Platform stability
Customer support

The cheapest spread isn’t always the best overall trading environment.

Common Beginner Mistakes

❌ Thinking the broker made a mistake because the trade starts negative.

❌ Ignoring spread when calculating risk-to-reward.

❌ Trading during major news events without checking current spreads.

❌ Choosing a broker based only on the advertised minimum spread.

❌ Backtesting strategies without including realistic spread costs.

Key Takeaways

✅ Every Forex market has two prices.

✅ Bid is the selling price.

✅ Ask is the buying price.

✅ Spread is the difference between Bid and Ask.

✅ Every trade begins by paying the spread.

✅ Spread is one of the ongoing costs of trading.

✔ There are four major trading sessions.

✔ London and New York are generally the most active sessions.

✔ Different currency pairs are more active during different sessions.

✔ Choosing the right session can improve trade quality.

Frequently Asked Questions

Why does my trade show a loss immediately after opening?

Because Buy trades open at the Ask price but would close at the Bid price. The difference between the two prices is the spread.

Is the spread the same for every currency pair?

No. Major currency pairs usually have lower spreads than minor or exotic pairs because they are traded more actively.

Why do spreads increase during news events?

Major news releases increase uncertainty and volatility. Liquidity providers often widen spreads to manage the increased market risk.

Are lower spreads always better?

Lower spreads generally reduce trading costs, but broker regulation, execution quality, commissions, and reliability are equally important.

Do all brokers charge spreads?

Almost all Forex brokers include a spread. Some accounts offer extremely low spreads but charge a separate trading commission.

Continue Your Journey

Other Learning Lints:

Automation Insight

Every professional trading robot evaluates the spread before opening a position. Even a profitable strategy can become unprofitable if trading costs are too high. That’s why many Expert Advisors include a maximum spread filter to avoid entering trades during unfavorable market conditions.