Forex Spreads Meaning For Dummies

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Forex Spreads meaning explained for dummies by “ForexSQ.com” experts, In this article you will know what is a spread in trading FX currencies and how to calculate spread in Forex trading.

What Is A Spread In Trading Forex Currencies

The difference in Forex and financial markets between buy or sell of an asset is a “Spread”. Traders and investors call this the Bid or Ask spreads. This is the simple meaning of Spreads in Forex trading.

What Is The Bid Price?

A bid price is the highest price that a buyer (i.e., bidder) is willing to pay for a good. It is usually referred to simply as the “bid.” In bid and ask, the bid price stands in contrast to the ask price or “offer”, and the difference between the two is called the bid–ask spread.

What Is The Ask Price?

Ask price, also called offer price, offer, asking price, or simply ask, is the price a seller states she or he will accept. The seller may qualify the stated asking price as firm or negotiable. Firm means the seller is implying that the price is fixed and will not change. In bid and ask, the term ask price is used in contrast to the term bid price.

Bid and Ask Price Difference

The ask price is what sellers are willing to take for it. If you are selling a stock, you are going to get the bid price, if you are buying a stock you are going to get the ask price. The difference (or “spread”) goes to the broker/specialist that handles the transaction.

How Is Spread Calculated ?

For example, for EUR/USD dealing at 1.33800/1.33808, the spread is 0.8 pips or 0.00008.  The exceptions to this are the JPY pairs, which are quoted with just two decimal places.  For example, a USD/JPY price of 97.41/97.44 displays a 3 pip spread.”

Another example, If the current bid price for the EUR/USD currency pair is 1.5760 and the current offer price is 1.5763, this means that currently you can sell the EUR/USD at 1.5760 and buy at 1.5763. The difference between those prices (3 pips) is the spread.

If the USD/JPY currency pair is currently trading at 101.89/101.92, that is another way of saying that the bid for the USD/JPY is 101.89 and the offer is 101.92. This means that currently, holders of USD can sell 1 USD for 101.89 JPY and investors who wish to buy dollars can do so at a cost of 101.92 JPY per 1 USD.

What is the spread in finance?

Definition of spread. Generally, the difference between two prices or interest rates. In stock trading, the difference between the current bid and ask prices for a stock (the bid/ask or bid/offer spread). In futures trading, the price difference between delivery months for the same commodity or asset.



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