Free Trading School · Level 2: How Prices Move
Bid, ask and the spread
Every market shows two prices. The bid is the best price someone is willing to pay right now. The ask (or offer) is the best price someone is willing to sell at. The ask is always a little higher than the bid, and the difference is the spread.
Buy at the ask, sell at the bid. The gap is the spread.
If you buy at market you pay the ask; if you then sold immediately you would receive the bid. So every trade starts with a small loss equal to the spread. In busy markets like EUR/USD or Apple the spread is tiny. In quiet markets, small stocks or during news, it can be wide.
| Quote | Bid | Ask | Spread |
|---|---|---|---|
| Large stock | $187.40 | $187.41 | $0.01 |
| Small stock | $3.10 | $3.18 | $0.08 (2.6%!) |
| EUR/USD | 1.08502 | 1.08510 | 0.8 pips |
Liquid markets have tight spreads. If the spread is large compared with your target, the trade is not worth taking.
Quick answers
Every market shows two prices. The bid is the best price someone is willing to pay right now. The ask (or offer) is the best price someone is willing to sell at. The ask is always a little higher than the bid, and the difference is the spread.
Liquid markets have tight spreads. If the spread is large compared with your target, the trade is not worth taking.
The ask. Buyers pay the ask; sellers receive the bid.
Next lesson: Liquidity and volatility