The forex market has bid and ask prices that are constantly changing. The foreign exchange currency markets are like stocks in having bid and ask prices; however, instead of company shares, forex investors trade what are known as foreign currency units. These can be as small as a thousand units or as large as a billion units, depending on the amount of leverage that is made available to the investor and how much money is in the account. 

For example, we can use the euro and dollar currency pair, the EUR/USD pair. The quote currency in this case would be the U.S. dollar, while the euro is the base currency. That means the quote for the bid and the ask would be in terms of U.S. dollars. If the dealer firm has a bid-ask spread of three pips and the current quote is 1.3008, we can say that the bid will be below the current price and the ask will be higher than the current price. The bid may be at 1.3007, and the quote currency ask may be at 1.3010. This leaves the 3 pips difference between them. The following explains what the bid price is, what the ask price is and what the bid-ask spread is.

Bid

The bid price is the price at which the dealer firm would be best able to buy the foreign currency units. This, as mentioned, will always be lower than the quote price. Because the dealer firm is buying the foreign currency units, the investor would be selling at the bid price.

Ask

Also known as the offer price, the ask price is the price at which the dealer firm would be best able to sell the foreign currency units. This will always be greater than the quote price. Depending on the dealer firm, there could be an ask price that is close to the quote price or far away. This same concept applies for the bid price.

In the case of the ask price, if the dealer firm is selling the foreign currency units, this means that the investor would be buying at the ask price.

Bid-Ask Spread

The bid-ask spread is the width of the buying and selling prices. If the market is in a so-called fast market, the prices will fluctuate in a way that will make the bid and ask spread widen on the side of the asking price or on the side of the bid price. This depends on which way the foreign currency market is heading. If it is a fast market and heading down, the bid prices will be much lower than the quote price. The opposite is also true for the ask price in an up market. In other words, thinking of it as a simple subtraction, it is the difference between the highest a buyer is willing to bid and the lowest a seller is willing to ask.

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