Bid and ask forex terms are probably the most practical of all forex terms. There is no doubt that a lot of activities takes place on the trading platform, all of which are aimed at buying or selling security, bid and ask. Understanding this term and how they work is very vital in forex trading.
WHAT IS “ASK” AND “BID” IN FOREX?
In forex trade, a bid is more like a proposal to buy a security, while the bid price is how much a forex trader who wants to buy a security is willing to pay for it. Ask is a form of notification made by a trader to indicate intentions to sell a security, while ask price is the least amount a forex trader is willing to sell a security. If a forex trader (who wants to buy security) finds a common ground with another trader (who wants to sell security), then a trade can transpire.
UNDERSTANDING BID AND ASK FOREX
In forex, whatever makes it into the market has a pair of price all the time. This pair of price is known as “bid and ask” price, and this is how it works;
A trader who wants to sell a security places an order to sell those security at the ask price (i.e. the lowest price a forex trader is willing to sell a security) and hopes that someone would buy at the ask price. Some at times, the trader may end up not selling the security at the ask price, he might go ahead to sell them at a price slightly lower that the ask price, the bid price (which is the highest price a buyer can pay for a security). So, the trader either waits for some other trader to buy the security at the ask price, or the trader scouts for buyer’s bid prices and then sell to someone on their bid price. It is the same with buyers too. A forex trader who wants to buy a security places a bid price (the highest price the trader is willing to pay) and hopes someone would sell the security in question at that price, or the buyer can scout sellers’ ask price and buy the security at a price slightly higher than the trader’s bid price.
For a trade to take place, it has to be a bid or ask forex. One of the two goes, either the security sells for the ask price at most, or it sells for the bid price at least.
Usually, there is a difference between the bid price and the ask price of a particular security. The bid price is usually lower that the ask price by a slight difference. That difference between the bid price of a security and the ask price is known as the bid-ask spread.