WHAT SPREAD IS IN FOREX.

BID/ASK -SPREAD

All Forex quotes include a two-way price, the bid and ask. The bid is always lower than the

ask price.

The bid is the price in which the dealer is willing to buy the base currency in exchange for

the quote currency. This means the bid is the price at which you (as the trader) will sell.

The ask is the price at which the dealer will sell the base currency in exchange for the

quote currency. This means the ask is the price at which you will buy.

The difference between the bid and the ask price is popularly known as the spread.

Let's take a look at an example of a price quote taken from a

trading platform:

On this GBP/USD quote, the bid price is 1.7445 and the ask price

is 1.7449. Look at how this broker makes it so easy for you to

trade away your money.

If you want to sell GBP, you click "Sell" and you will sell pounds

at 1.7445. If you want to buy GBP, you click "Buy" and you will

buy pounds at 1.7449.

In the following examples, we're going to use fundamental analysis to help us decide

whether to buy or sell a specific currency pair. If you always fell asleep during your

economics class or just flat out skipped economics class, don’t worry! We will cover

fundamental analysis in a later lesson. For right now, try to pretend you know what’s

going on…

EUR/USD

In this example Euro is the base currency and thus the “basis” for the buy/sell.

If you believe that the US economy will continue to weaken, which is bad for the US dollar,

you would execute a BUY EUR/USD order. By doing so you have bought euros in the

expectation that they will rise versus the US dollar.

If you believe that the US economy is strong and the euro will weaken against the US

dollar you would execute a SELL EUR/USD order. By doing so you have sold Euros in the

expectation that they will fall versus the US dollar.

USD/JPY

In this example the US dollar is the base currency and thus the “basis” for the buy/sell.

If you think that the Japanese government is going to weaken the Yen in order to help its

export industry, you would execute a BUY USD/JPY order. By doing so you have bought

U.S dollars in the expectation that they will rise versus the Japanese yen.

If you believe that Japanese investors are pulling money out of U.S. financial markets and

converting all their U.S. dollars back to Yen, and this will hurt the US dollar, you would

execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation

that they will depreciate against the Japanese yen.

GBP/USD

In this example the GBP is the base currency and thus the “basis” for the buy/sell.

If you think the British economy will continue to do better than the United States in terms

of economic growth, you would execute a BUY GBP/USD order. By doing so you have

bought pounds in the expectation that they will rise versus the US dollar.

If you believe the British's economy is slowing while the United State's economy remains

strong like bull, you would execute a SELL GBP/USD order. By doing so you have sold

pounds in the expectation that they will depreciate against the US dollar.

USD/CHF

In this example the USD is the base currency and thus the “basis” for the buy/sell.

If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order. By

doing so you have bought US dollars in the expectation that they will appreciate versus

the Swiss Franc.

If you believe that the US housing market bubble burst will hurt future economic growth,

which will weaken the dollar, you would execute a SELL USD/CHF order. By doing so you

have sold US dollars in the expectation that they will depreciate against the Swiss franc.