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People with years and years of experience in the trading world sometimes still mistake the bid and ask price. Therefore, we have you covered.
It never hurts to refer to articles like this to refresh your memory.
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The term ‘bid and ask price’ is referring to a two way price quotation that instantly indicates what the current buy and sell price is of any given financial instrument. The bid price is essentially the maximum price that a buyer is wanting to pay. The ask price is essentially the minimum price that a seller is willing to accept.
The difference between the bid and ask price is known as ‘the spread’. It is important to be aware of the functions that each part of the spread (the bid and ask price) plays when placing a trade.
The bid price is used when opening a sell trade and closing your buy trade. In the trading platform available, it is this price that is used to create the chart price.
The ask price is used when opening your buy trades and closing your sell trades. The ask price sits above or on the chart price as it is always higher in value than the bid.
To keep it short and simple, the market sets the bid and ask price. If we take a look a little deeper, it is technically the buying and selling decisions of all parties that are partaking in this instrument that move both the bid and ask price.
You’re taking your first steps as a trader. You open your platform and you look at all the quotations of all the different instruments. It could be a little overwhelming at first, but then you will quickly see in the market watch that there are two columns. One that is titled Bid and the other titled Ask.
Let’s use EURUSD for this example. In the bid column you will see 1.16722 and in the ask column you will see 1.16724. As a trader you should automatically know or understand that at this point in time, that one price is the best available price to buy EURUSD and the other is the best available price to sell EURUSD.
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