FX · How the FX market works · lesson 5 of 9 · 5 min read · David Alexander
The bid, the ask and why there are always two prices
Bid and ask
Every FX quote is two prices. The bid is what a dealer will pay you right now for the base currency; the ask is what they will sell it to you for, always a fraction higher. The gap between them is the spread - the dealer's price for letting you trade immediately - and you cross it on every trade, in either direction.
Open any platform and EUR/USD is not one number - it is 1.0999 / 1.1000, two prices a fraction apart, and which one you get depends on which way you trade. New traders read the pair as having a price with some decoration around it. Both numbers are the price.
Why two prices and not one?
Because the quote is a dealer's standing offer to trade with you either way, instantly, and those are two different services. The bid is what they will pay for the base currency; the ask is what they will sell it for. Quote both, stand behind both, and the gap between them is your compensation for being permanently available to strangers who know the news as fast as you do.
You always trade at the worse of the two for your direction: buy at the ask, sell at the bid. That single fact prices immediacy. Anyone can avoid the spread by waiting and hoping the market comes to them - what the spread buys is now. The worked example makes the purchase visible.
Worked example
figures in USDYou trade one standard lot of EUR/USD on a quote with a 0.8 pip spread. A pip on one lot is worth $10.
- The quote on EUR/USD shows a 0.8 pip gap between bid and ask. You buy 1 lot at the ask.
- Sell it back the same second - at the bid, because that is the side a seller gets - and the round trip costs $8. Nothing moved; you paid the gap itself.
- The cost has no direction: a trader who sold first and bought back pays exactly the same $8. The spread is the entry fee for immediacy, charged both ways, and it is why every position starts fractionally behind.
Why does the gap change size?
The spread is a price for risk, and the dealer's risk changes by the minute. When the market is deep and calm, standing behind a quote is nearly safe and spreads sit under a pip on the majors. When news is seconds away or the hour is thin, a standing quote is a target, so dealers widen the gap or step back entirely. A widening spread is the market telling you what it currently costs to be impatient.
What this means for you
Every position you ever open starts the spread behind, so the gap is part of every trade's arithmetic before the market has said a word. Watch the spread as well as the price: it widens exactly when trading is most tempting, around news and thin hours. The full cost accounting - spreads beside commissions and overnight financing, compounding across a month of trading - is module 3's territory; this lesson's job is the mechanic. The tool below shows what your own pair and size pay per crossing.
Try it yourself
Spread cost calculator
What a spread costs across a month and a year at your trade frequency and size.
Check your understanding
Question 1 of 4
EUR/USD shows 1.0999 / 1.1000. You place a market buy. Which price do you get?