Bid/Ask

In financial trading, the bid and ask are two distinct prices that are quoted together by brokers, providing the cost information to both the buyer and the seller of a particular financial instrument.

The bid is defined as the price at which the market is prepared to buy the asset, and the price at which the trader is able to sell that asset.

By extension, the ask (also known as the offer) is the price at which the market is prepared to sell the asset, and the price at which the trader is able to buy that asset.

The bid and ask prices are usually quoted in the following format: the bid is always lower than the ask, and is displayed on the left side of the quotation.

The ask is always higher than the bid, and is displayed on the right side of the quotation.

The difference between the two prices is known as the spread, and is an inherent transaction cost of financial trading.

Examples of Bid/Ask in Forex Trading

For example, in the currency markets, we have the quote for AUD/USD: 0.7515/0.7517. This means the bid, which is the price that the trader would sell or short the pair AUD/USD at, is 0.7515.

The ask, which is the price that the trader would buy or long the pair AUD/USD, is 0.7517. In this case, the spread is two pips, and would be paid by the trader regardless of whether buying or selling.

Different assets will possess different spreads, which is due to supply and demand. Generally, the greater the liquidity, the smaller the spread.