Understanding Bid and Ask Prices 

When trading, the bid and ask prices set the stage for market activity. 

The bid represents the highest price a buyer is willing to pay, while the ask is the lowest price a seller is willing to accept. 

Together, these two prices form the true marketplace, defining where trades are executed and where opportunities arise. 

The Bid Price 

Think of the bid as a buyer’s best offer. In forex, if a trader wants to buy EUR/USD, their bid is what they’ll pay for euros. If their bid is 1.11160, that’s the price they’re offering per euro. 

The Ask Price

The ask price is the flip side. The seller’s best price. In the same EUR/USD example, if the ask is 1.11175, that’s what a seller wants to receive per euro. The difference between the two is the spread, and understanding this gap is crucial for traders. 

Spread: Difference Between the Bid and Ask Price 

The spread is the difference between the bid and ask prices, and it’s typically where brokers generate their profit. 

In highly liquid markets such as EUR/USD, spreads tend to be very tight — a reflection of strong liquidity and high competition. Conversely, in less liquid markets, spreads widen, making this hidden cost more impactful on your trading performance. 

For example, consider the EUR/USD pair, one of the most liquid instruments in the FX market.

Here, the bid/ask prices would be displayed as follows. 

• Bid: 1.11160 (Trader A is willing to buy euros at this price) 
• Ask: 1.11175 (Trader B is willing to sell euros at this price) 

This creates a bid-ask spread of 0.00015. 

Understanding how spreads work allows you to avoid unfavourable execution conditions and minimise hidden trading costs — which can be especially valuable in fast-moving markets. 

The Importance of Liquidity 

Think of liquidity as how busy and active a market is. 

When a market is highly liquid, like major forex pairs such as EUR/USD, it’s like a crowded marketplace with lots of buyers and sellers. Prices move smoothly, spreads are small, and trading feels easy and cheap. 

But in less liquid markets, like exotic currencies or smaller company stocks, it’s more like walking into a quiet shop. You don’t have many people to trade with, so the gap between buying and selling prices (the spread) gets wider. That means you could end up paying more just to get in or out of a trade. 

Liquidity also affects how fast your order gets filled. In a busy market, it’s almost instant. In a quiet one, you might wait longer or get filled at a worse price. 

In short: 

More liquidity = tighter spreads, faster execution, lower cost. 
Less liquidity = wider spreads, slower execution, higher cost. 

Why Bid and Ask Prices Matter 

For traders, overlooking the bid and ask prices is like driving while only looking in the rear-view mirror. 

The last price tells you what already happened. It’s history. 

But the bid and ask prices show you what buyers and sellers are willing to do right now. They reflect the current demand and supply and give you a clearer picture of where the market is heading. 

Understanding them helps you spot opportunities early and enter the market at the right moment, instead of reacting too late. 

Conclusion 

Understanding bid and ask prices is more than just knowing the mechanics of how trades are executed. It’s about recognizing the true cost of your trades and how small differences can significantly impact your profitability over time.  

In trading, every fraction of a point counts, and being aware of the bid-ask spread can be the difference between a winning and losing trade.  

So next time you enter a position, don’t just watch the price. Keep an eye on the spread.  It’s your key to smarter trading decisions.