Spread is the difference between Bid/Ask prices. It is the size of the transaction cost which varies from pair to pair.
Generally, the “bid-ask” spread works to the advantage of market makers. An individual investor has to compete with the bid and asked spread as an implied cost of trading.
“Bid-ask” spreads can vary widely depending on the safety and the market.
The bid-ask spread can significantly widen during periods of illiquidity or market mess, as traders will not prefer paying a price beyond a certain entry, while sellers may not want to accept prices below a certain level.
Currency pair is always quoted double price; “Bid” for sale and “Ask” for buy of a base currency in a pair for the quote one.
This quotation means we have an opportunity to instantly
- Sell 1 EUR for 1.4110 USD (at the Bid price)
- Buy 1 EUR for 1.4112 USD (at the Ask price)
The entire process of trading include both “Bid” and “Ask” procedures, since “opening” and “closing” means acquiring opposite transactions:
- Opening a “Buy” position means “buying” while closing a “Buy” position means “selling”
- Opening a “Sell” position means “selling” while closing a “Sell” position means “buying”
Spread volume is measured in pips. In our example the EURUSD spread is 2 pips.
Note: Keep in mind that charts are created based on the “Bid” price. In comparison with what the running chart shows, “Ask” price is always spread-distance higher.