Like any financial market the Forex market has a bid ask spread. This is simply the difference between the price at which a currency pair can be bought and sold. Bid Price — Used when selling a currency pair. It reflects how much of the quoted currency will be obtained if buying one unit of the base currency. Ask Price -Used when buying a currency pair.
It reflects the amount of quoted currency that has to be paid in order to buy one unit of the base currency. Remember from the lesson on Forex currency pairs that the base currency is the one in front while the quote currency is the second. The most important thing to remember is that the bid price is used for selling while the ask price is used when buying.
At the end of the day all of these intricacies are taken care of for you by your broker. While the major currency pairs and even some crosses have decent spreads, some of the more exotic currency pairs can have wide spreads, creating a large deficit as soon as you enter a trade.
Make no mistake though, the spread on some of the less-liquid currency pairs can be significant and should certainly be considered before taking a trade, even when trading the higher time frames. We all know that the Forex market is a global market consisting of different trading sessions. The bid ask spread for a currency pair can vary depending on the current trading session. For the most part the bid ask spread will be the lowest during the London and New York sessions as these carry the largest trading volume.
However there is a three hour window that occurs immediately after the New York session closes and before Tokyo opens in which the spreads can considerable. This is especially true for some of the currency crosses and exotic currency pairs but can also effect the major currency pairs. In fact as a general rule you should always check the bid ask spread before entering a trade regardless of the current trading session.
I hope this lesson has helped you to better understand the Forex bid ask spread as well as when to take extra care and watch for larger-than-usual spreads. Please log in again.
The login page will open in a new window. After logging in you can close it and return to this page. The bid price will always be smaller than the ask price. Sydney Tokyo London New York The bid ask spread for a currency pair can vary depending on the current trading session. Session expired Please log in again.More...