What is the BID Price?
The BID price is the highest price a Buyer is willing to pay for an asset at any given moment. In trading, this represents the price at which you, as a trader, can SELL the asset. The market candle is printed based on the BID prices.
What is the ASK Price?
The ASK price, also known as the offer price, is the lowest price a seller is willing to accept for an asset. This is the price at which you can BUY the asset from the market.
BID-ASK: Spread
The spread is the difference between the BID price and the ASK price. This spread often serves as a transaction cost for traders. For example:
- XAUUSD BID: 2646.35
- XAUUSD ASK: 2646.55
- Spread: 2 pips
How Do BID and ASK Prices Work in Forex?
In forex trading:
- BUY Orders: Opens at the current ASK price, and closes at BID price.
- SELL Orders: Opens at the current BID price, and closes at ASK price.
Limit Orders: A limit order is placed at a specific price in the market and will only execute when the relevant price side—ASK for a BUY Limit order and BID for a SELL Limit order—reaches the specified level. It ensures execution only if the market hits that designated price point. Often we see that the market price hit our BUY Limit order price but the order didn’t execute yet. Cause the asking price didn’t reach the BUY Limit Order Price.
When Your Limit Order Fails to Trigger Despite Reaching the Price
BUY Limit
The reason your BUY Limit Order was not executed lies in the spread—the difference between the BID price. When you place a BUY Limit Order, it triggers when the ASK price reaches your specified limit price.
For example, you placed a BUY Limit order at 2434.34, and the candle moved beyond this price level. However, the order was not executed because the ASK price did not reach your specified limit price, even though the BID price dropped 1 pips below the set limit.
Stop Loss
Sometimes, you might notice that the price level displayed on the candle did not reach your desired level, yet the Stop Loss is triggered. This occurs because the BID price (commonly shown on charts) did not reach the specified level, but the ASK price did. The reason your Stop Loss was triggered lies in the spread—the gap between the BID and ASK prices.
For a SELL order, the Stop Loss is designed to trigger when the ASK price reaches the specified Stop Loss level, not the BID price. This discrepancy is due to the spread, which can vary depending on market conditions.
Take Profit
Sometimes, you might notice that the price level displayed on the candle reached your desired level, yet the Take Profit did not trigger. This occurs because the BID price (commonly shown on charts) reached the specified level, but the ASK price did not. The reason your Take Profit was triggered lies in the spread—the gap between the BID and ASK prices.
For a SELL order, the Take Profit order is designed to trigger when the ASK price reaches the specified Stop Loss level, not the BID price. However, the order Take profit could not be triggered because the ASK price did not reach your specified limit price, even though the BID price dropped 1.4 pips below the specific price level.
Importance of Spread
The spread represents the cost of trading. A narrow spread (small difference) is more favorable for traders as it reduces costs, while a widespread (large difference) increases the cost of entering and exiting trades. Spreads can indicate market liquidity:
- Narrow spreads = High liquidity.
- Wide spreads = Low liquidity or high volatility.
Widen Spreads During News Events
During major news releases, markets experience heightened volatility and uncertainty. This often leads to:
- Widen Spread
- Sudden Spike
- Rapid Price Movement
Factors Affect the BID-ASK Spread
Several factors influence the BID-ASK spread:
- Liquidity: Highly liquid assets (e.g., major forex pairs) have tighter spreads, while less liquid assets (e.g., exotic currency pairs) have wider spreads. BID and ASK prices constantly fluctuate based on market activity. Especially, when the liquidity of symbols drops due to various variable spreads it can get wider even for usual liquid pairs. Factors such as changes in supply and demand, news events, and economic data releases can cause these prices to move rapidly.
- Market Volatility: During periods of high volatility, spreads tend to widen due to uncertainty in the market.
- Market Hours: Spreads can vary depending on the time of day, especially outside regular trading hours or during midnight and market overlaps.
Minimizing the Impact of Spreads
- Trade highly liquid assets with narrow spreads.
- Avoid trading during periods of high volatility or low liquidity.
- Use a reliable firm that offers competitive spreads or raw spreads with transparent commission fees.
A short overview of BID and ASK:
Conclusion
Understanding BID and ASK prices is essential for navigating financial markets effectively. Being informed about BID-ASK spreads, market volatility, and liquidity helps traders make smarter decisions and minimize costs.
At FundedNext, we provide some of the lowest spreads in the industry. We offer an optimized trading environment with minimal spreads, ensuring our clients can focus on their strategies without excessive transaction costs. Whether trading during regular hours or high-volatility events, FundedNext gives traders a distinct advantage with competitive pricing.
