Believe me, trying to understand bid and ask price in forex when I was starting to learn forex trading was confusing. You see, in the forex market, the price of a currency pair is actually quoted in two different prices: the bid and ask prices.
In a forex quote:
- the first currency is the base currency
- and the second currency is the counter currency.
If the exchange rate of EUR/USD was quoted as EUR/USD=1.0661/1.0664 then:
- first price in the quote is the bid price and appears on the left side of the quote
- and the second price in the quote is the ask price and appears on the right side of the quote
See below for clarity:
The difference between the ask price and the bid price is the spread. In forex, spread is stated in PIPs.
PIP is short for Points in Percentages. Click here to know more about PIPs: What is a pip in forex?
What Is The Bid Price In Forex?
- A bid price in forex is the price at which the market is prepared to buy a currency pair in the forex market.
- The bid price is the price that a trader buys the base currency.
Taking again the forex quote EUR/USD=1.0661/1.0664 as an example:
- The bid price is 1.0661
- This means that you can sell 1 EURO for 1.0661
What Is The Ask Price In Forex?
- In forex, the asking price is the price at which the market is ready to sell a specific currency pair.
- For example, in the same EUR/USD=1.0661/1.0664 , the ask price is 1.0664. This means you can buy one EUR for 1.0664 USD
- the ask (sometimes also called the offer price) is what you will be quoted when you are attempting to buy or enter a long position.
Placing Orders In Forex Market
In the forex market, there are only two order types: you either place a sell order or a buy order. These buy and sell orders can be Instant (Market) or Pending Orders.
What you see below is the screenshot of Metatrader 4 screen when you want to place a new order:
Now if you pressed the buy button, which price does your order gets filled at?
Similarly, if you pressed the sell button, which price does your sell order gets filled at?
What Price Are Buy Orders Executed At?
Buy orders are executed at Ask Prices. So if you put on a buy trade in EURUSD, your order gets filled/ executed at the ASK Price.
Now, you close a buy trade by doing any of these:
- taking profits
- stop loss is hit
- or just manually exiting it for whatever reason
That what is the price that you exit your buy trade? You exit your buy trade at the BID Price.
It is just the opposite: you open a buy trade with the ask price and you close a buy trade with the bid price.
What Price Are Sell Orders Executed At?
Sell orders are executed at Bid Prices.
If you place a sell trade on any currency pair, like EURUSD, the sell trade order is filled(executed) at the BID Price.
Sell orders are exited or close at the ASK price.
Again, its just the opposite: you open a sell order at the BID price and you close it at a ASK price.
What Price Is Shown On The Mt4 Chart?
The current live price shown on any MT4 chart, by default, is the BID price. The MT4 chart does not show the ASK Price.
So how would you enable ASK price in an MT4 chart. It is very simple, follow these steps:
- Click “Chart” On Your Mt4 Platform.
- Scroll down and click “Properties”
- Click the “Common” tab and check “Show Ask line”.