The bid price is the price a trader is willing to pay to buy a currency, while the ask price is the price a trader is willing to accept to sell the currency. The difference between these two prices is called the spread.
The bid and ask prices determine the cost of entering and exiting a trade. The spread, or the difference between these prices, is a transaction cost that traders must factor into their strategies.
For example, if the EUR/USD pair has a bid price of 1.1000 and an ask price of 1.1002, the spread is 2 pips. This means a trader would need the price to move 2 pips in their favor to break even on a trade.
Test your knowledge of bid and ask prices in forex trading with the following questions:
