What is the Bid Price-Ask Price and Bid-Ask Spread?

What is the Bid Price-Ask Price and Bid-Ask Spread?

Bid-Ask Spread expresses the difference between the buying and selling prices of any traded security.

Bid is the price at which market participants are willing to buy assets (such as foreign exchange, security) traded in the market.

In every transaction made in the financial markets, there is the logic of earning profit because of the trading difference. In order to fully understand these concepts, known as the bid-ask spread in the markets, it is necessary to understand the main working logic in the markets.

When trading in financial markets, investors want to enter the trade at the best price. For transactions such as foreign exchange, commodities, stocks, high profit is targeted by buying at the lowest price and selling at the highest price. The buying and selling prices determined by the market for this profit target are called bid-ask prices.

Ask Price and Bid Price in the Instant Market

In the instant market, there are two price types. Ask Price and Bid Price. Both prices are instant prices in the spot market. If traders are going to open a buy-side position, the margin calculation is made on the Ask price, depending on their volume and leverage ratio. In sales-oriented transactions, a margin calculation is made over the bid price. In short, the price investors enter into the transaction differs depending on whether their transaction is “buy” or “sell”.

Bid price is the selling price of a product. On the other hand, the ask price is the purchase price of a product. For these two transactions, which are also called buy and sell price in Forex terminology, buy means ask whereas sell means bid price.

Bid and Ask Spread

In the markets, business takes place within the framework of the supply-demand relationship. For example, if the demand for the dollar is high, the increase in the dollar will be more than other currencies. This is how the buy-sell difference, called the spread, is determined. An investor who buys the dollar profits from the difference between the price he/she buys and the price he/she sells.

SEE ALSO: What are Stop Loss and Take Profit Orders in Forex?

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Caroline Tetra

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