Bid/Ask Spreads
Two prices, always
Every tradable instrument actually has two live prices at once: the Bid (the highest price a buyer is currently willing to pay — what you'd get if you sold right now) and the Ask/Offer (the lowest price a seller is currently willing to accept — what you'd pay if you bought right now). The Ask is always equal to or higher than the Bid.
The spread is a built-in cost
The difference between Ask and Bid is the spread — effectively a transaction cost paid to whoever provides that liquidity (a broker or market maker), separate from any commission. The moment you open a position, you're already slightly "underwater" by the size of the spread, because you buy at the (higher) Ask and would have to sell at the (lower) Bid to close immediately.
- Bid: price you SELL at
- Ask (Offer): price you BUY at
- Spread = Ask − Bid
- Tighter spreads = generally more liquid markets (e.g. EUR/USD); wider spreads = typically less liquid or more volatile instruments
Key Formula / Concept — Spread Cost
Spread = Ask Price − Bid Price
A EUR/USD quote of 1.0850 / 1.0852 has a 2-pip spread — meaning the pair would need to move 2 pips in your favor just to break even on entry.
Pro Tip
Spreads widen during low-liquidity periods — major news releases, market opens/closes, and holidays. A strategy that works fine on a normal 1-pip spread can quietly lose its edge if spreads balloon to 5-10 pips during a news spike.
Checkpoint Quiz
Checkpoint Quiz
Question 1 of 5What is the "Bid" price?