BID/ASK AND SPREAD

BID/ASK AND SPREAD 


Whenever a currency pair is quoted (as shown in the chart above, and the order window below), the prices are quoted with both a bid price and ask price. The bid price is the price that you would pay to sell the currency pair (go short), and the ask price is the price you would pay to buy the currency pair (go long). The difference between the two numbers is known as the spread. Looking at the order window below:

The bid price is 1.6280. The ask price is 1.6284. The spread is then 1.6284 – 1.6280 = 0.0004. The spread is something that any trader should be aware of. It’s important to note that if you made a trade with the intention of earning 30 pips, and the spread was 4 pips, the currency pair would have to move 34 pips before you hit your profit target. This becomes more important when you trade currency pairs that have a larger spread. Most currencies are quoted with 4 decimal places, and the 4th decimal point is known as 1 pip. There are exceptions to this, so let’s take a moment to talk about pips, profits and trades.

Comments

Post a Comment

Popular posts from this blog

UNDERSTANDING CANDLESTICK PATTERN

Image
WHAT IS A CANDLESTICK?   A candlestick depicts the battle between Bulls (buyers) and Bears (sellers) over a given period of time. Before we get down to the nitty-gritty, (spoiler alert: awesome candlestick formation images are coming your way) it’s important for you to understand what a candlestick actually is.  No, we’re not talking about the kind you pick up from that fancy candle store to set the mood on date night. We’re talking about Japanese Candlesticks — the market signal that shows the battle between the Bulls (buyers) and the Bears (sellers) over a certain amount of time.  Why do you need to know Candlesticks like the back of your hand? Because knowledge could give you the upper hand when the Bulls and the Bears are in the middle of a market smackdown. Candlestick formations allow you to find setups, determine market direction and identify optimal entry and exit points that could help you execute profitable returns consistently in your trades. U...
Read more

WHAT IS FOREX

Image
What is Forex? Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world's currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion. All the world's combined stock markets don't even come close to this. But what does that mean to you? Take a closer look at forex trading and you may find some exciting trading opportunities unavailable with other investments. FOREX TRANSACTION: IT'S ALL IN THE EXCHANGE If you've ever traveled overseas, you've made a forex transaction. Take a trip to France and you convert your pounds into euros. When you do this, the forex exchange rate between the two currencies—based on supply and demand—determines how many euros you get for your pounds. And the exchange rate fluctuates continuously. At this point in time, Forex is one of the largest trading vehicles in the world. To clari...
Read more