Inside Trade | The Bid, Ask, and the Spread

Before jumping in to currency trading, you must first know how the exchange system is running. The exchange is done through buying and selling of different currencies. It consists of the buy and sell rate.

The buy rate (Bid) is the amount that a trader may be willing to buy a certain currency. The sell rate (Ask) is the amount that a trader is willing to sell the currency. The concept of buy and sell rate is anatropous from the trader's perspective.

In the EUR/USD quotation, you could buy a euro for 1.2485 USD and sell it for 1.2482 USD. If you have a 100 euro, you would need 124.85 USD to buy it and you would get 124.82 if you're willing to sell it. If you would notice, the Ask rate is always higher and it is now up to the traders how they would trade it in order to gain profit.

Have you ever wondered how brokers gain their profit? In trading currency quotations you could also notice that there's a difference between the Bid and Ask price. That difference is called Spread.

The Spread is where the brokers earn their profit. Its size depends on liquidity of the chosen currency market. If the currency isn't traded actively on Forex then the Spread can be bigger. As a rule, the broker houses representing private investors do no take commission on transaction-they earn on a spread. The Spread in the exchange market is way smaller compared to banks.