Trading the forex market can be a very satisfying activity, resulting in very big profits. However, in order to trade the forex market, certain knowledge is needed. First, what are ask, bid, and spread.
Ask – how much the broker is asking for selling the pair. It’s your buying price.
Bid – how much the broker is bidding to buy the pair. It’s your selling price.
Spread – the difference between the ask and the bid.
The important number here is the spread, and it is measured in pips:
Pip – the smallest change of forex rates.
For example, the EUR/USD rate is quoted with four decimal points, so one pip on this pair is a change of 0.0001. The USD/JPY rate is quoted with two decimal points, so one pip on this pair is 0.01.
The spread is important because it shows you how much the exchange rates need to move in your favor before you break even (no profit and no loss).
The spread is a form of commission, so before you choose your forex broker make sure the spread is about 2-3 pips on the majors (5 pips is OK, but not great). Make sure the
broker does not take any other trading commission.
Ask – how much the broker is asking for selling the pair. It’s your buying price.
Bid – how much the broker is bidding to buy the pair. It’s your selling price.
Spread – the difference between the ask and the bid.
The important number here is the spread, and it is measured in pips:
Pip – the smallest change of forex rates.
For example, the EUR/USD rate is quoted with four decimal points, so one pip on this pair is a change of 0.0001. The USD/JPY rate is quoted with two decimal points, so one pip on this pair is 0.01.
The spread is important because it shows you how much the exchange rates need to move in your favor before you break even (no profit and no loss).
The spread is a form of commission, so before you choose your forex broker make sure the spread is about 2-3 pips on the majors (5 pips is OK, but not great). Make sure the
broker does not take any other trading commission.
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