What the bid price means
The bid price in forex is the highest price a buyer is prepared to pay for the base currency in a currency pair. In a quoted price like EUR/USD 1.1000 / 1.1002 the first number (1.1000) is the bid and the second (1.1002) is the ask. From a retail trader’s point of view the bid is the price at which you can sell a pair; from the market maker or liquidity provider’s point of view it’s the price they will pay to buy currency from you. That dual perspective explains why you always see two numbers on your platform rather than a single market price.
How bid and ask work in practice
When you place an immediate market buy order you pay the ask price; when you place a market sell order you receive the bid price. The difference between the two — the ask minus the bid — is the spread and represents the transaction cost you pay on entry (and often part of a broker’s revenue).
To make this concrete, imagine your platform shows EUR/USD 1.1000 / 1.1002. If you Buy one standard lot (100,000 units) using a market order you will be filled at 1.1002. If you later sell to close the position and the platform shows a bid of 1.1020 / ask 1.1022, your sell execution will be at 1.1020. Your gross pip gain is 1.1020 − 1.1002 = 0.0018, or 18 pips. For a standard lot where one pip ≈ $10, that equals about $180 before any commissions or swap charges.
When you open a trade you start in the red by the size of the spread. In the example above the spread was 2 pips (1.1002 − 1.1000) which costs roughly $20 on a standard lot immediately on entry.
Spread, cost and pip value explained
The spread is the mechanical difference between the bid and the ask. It’s often expressed in pips (the fourth decimal for most major pairs, or the second for JPY pairs). Spread size depends on liquidity and market conditions. For a standard lot (100,000 base units) each pip on USD‑quoted pairs is roughly $10; for a mini lot (10,000 units) it’s about $1; for a micro lot (1,000 units) it’s about $0.10. That means a two‑pip spread costs roughly $20 per standard lot, $2 per mini lot, or $0.20 per micro lot.
Spreads may be fixed or variable. Variable (raw) spreads can be tiny in normal conditions but widen during low liquidity or big news. Brokers may offer raw spreads plus a commission or include their fee in a wider spread — the net cost to you is what matters.
Who sets the bid and ask, and what moves them
Large banks, institutional liquidity providers and electronic market makers supply bid and ask quotes to the interbank market. Retail brokers aggregate and pass those quotes to clients; some add a small markup. The main forces that change bid/ask quotes are liquidity (how many buyers and sellers are active), volatility (how fast prices are moving), and competition among liquidity providers.
Time of day matters: spreads tend to be tightest during high‑volume overlaps such as the London–New York session and wider during thin sessions like late Friday or the Asian session for some pairs. News releases and sudden market moves can also push spreads dramatically wider for short periods.
How order types interact with bid and ask
Order type determines whether you trade at the bid or the ask and how stop loss and take profit levels are triggered. Market orders trade immediately and therefore hit the current bid (when selling) or lift the current ask (when buying). Limit orders let you specify a price and are only filled if the market reaches that level.
An important execution detail many beginners miss is which quote triggers stops and profit targets. If you open a sell (short) position, the entry executes at the bid; to close that short position the market must buy back (so the ask price is used to trigger your stop loss or take profit). Conversely, if you open a buy (long) position, your entry is at the ask and the bid is used when checking stop loss or take profit triggers.
For example, suppose you open a sell EUR/USD position and get filled at the bid 1.1775. You set a take profit at 1.1745 and a stop loss at 1.1790. Because you are short, the platform will look at the ask price to decide whether your take profit or stop loss has been reached: if the ask falls to 1.1745 your TP will be executed; if the ask rises to 1.1790 your SL will be hit.
Slippage can also occur: during fast moves a market order may be filled at a worse price than shown, and stop orders can get executed outside their requested price if there’s not enough liquidity.
Practical suggestions for traders
Pay attention to the spread before placing a trade — it’s an immediate cost that affects break‑even. If you trade small timeframes or scalp, spreads and commissions have a much larger impact than for swing trades. Prefer major pairs for lower, more stable spreads and avoid exotic pairs unless you understand the wider costs. Check whether your broker charges commission in addition to spread and whether they use fixed spreads or pass-through/raw liquidity. Finally, be cautious around scheduled news releases; spreads can widen quickly and execution becomes less predictable.
Risks and caveats
Trading forex involves substantial risk. Spreads can widen unexpectedly, slippage and requotes can occur, and leverage can magnify losses as well as gains. Brokers differ in how they provide quotes and in the speed and reliability of executions; data feeds can occasionally be delayed or inconsistent, so always verify prices on your platform. The examples above use simplified pip and dollar values for illustration — real account currency, lot size, and pair convention change exact dollar amounts. This article is educational and not personalized trading advice. Always consider your risk tolerance and seek independent guidance if you’re unsure.
Key Takeaways
- The bid is the price at which you can sell a currency pair; the ask is the price at which you can buy it. The spread between them is a transaction cost.
- Market buys execute at the ask; market sells execute at the bid. Stop loss and take profit triggers depend on the side of your position.
- Spread size depends on liquidity, volatility, time of day and broker pricing model; it directly affects how large a move you need to profit.
- Trading carries risk. Understand spreads, execution behavior and your broker’s fees before trading; this is educational information, not personalized advice.
References
- https://www.forextime.com/education/videos/the-bid-and-ask-price-in-practice
- https://dailypriceaction.com/blog/bid-vs-ask/
- https://www.investopedia.com/articles/forex/090914/understanding-spread-retail-currency-exchange-rates.asp
- https://fiveable.me/key-terms/international-economics/bid-price
- https://www.babypips.com/learn/forex/bid-and-ask-price-explained
- https://corporatefinanceinstitute.com/resources/equities/bid-and-ask/