Bid-Ask Spread

In foreign exchange (FX), the bid/ask spread is the difference between the highest price a buyer is willing to pay (bid) for a currency and the lowest price a seller is willing to accept (ask). The spread reflects market liquidity and can affect transaction costs.

• Simple Example: TechCorp is tracking the EUR/USD currency pair. The bid price is 1.0900, meaning buyers are willing to pay 1.0900 USD for 1 euro, while the ask price is 1.1000, meaning sellers are asking for 1.1000 USD for 1 euro. The bid/ask spread is the difference between these two prices.
• Numerical Breakdown:
  • Bid Price: 1.0900 USD
  • Ask Price: 1.1000 USD
  • Bid/Ask Spread: 1.1000 - 1.0900 = 0.0100 (or 100 pips)
    • This 100-pip spread shows the gap between buyers' willingness to pay and sellers' price, influencing transaction costs in FX markets.