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Bid, ask and spread in Forex

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Before discussing the bid, ask and the spread we need to familiarise ourselves with the pricing structure of currency pairs. So, if we are looking at EUR/USD, the first currency listed (EUR) is the base currency. The second currency listed (USD) is its counterpart. If the current price is showing fore example 1.35560; this means that it currently costs 1.35560 USD to buy 1 EURO. 

In general terms, most people refer to prices as selling and buying prices; selling prices if you are shorting and buying prices if you are going long. However, it is worth knowing the technical terms for those prices. Selling price is referred to as the BID and the buying price is referred to as the ASK. You may find many technical articles explaining why prices are referred to in this manner but realistically, this is all you need to know. 

The difference between the bid and the ask is called the SPREAD. The width of the spread will depend on the relationship Forex brokers have with their price providers (amongst many reasons) but essentially, this is how they make money from your trading. So, if the spread is 2 pips wide, you will need to accumulate 2 pips movement in your trading direction before you break even. If the spread is 2 pips wide, you will need to make 2 pips to break even. 

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