Forex brokers will quote you two different prices for currency pairs: the bid and the ask prices.
“bid” is the price at which you can sell the base currency.
“Ask ” is the price at which you can buy the base currency.
The difference between these two prices is called the Spread.
is also known as “Bid-ask spread”.
Spreads are how “commission-free” brokers make money.
Instead of charging separate trading fees, the costs are built into the bid and ask prices of the currency pairs you wish to trade.
From a business perspective, it makes sense. To provide a service, a broker must make money in some way.
- They make money by selling the currency to for a higher price than the currency was purchased for .
- They can also make money by buying currency from for a price lower than the price they sold the currency for.
- This difference is called the Spread.
It’s like trying to sell your old iPhone to a store that buys used iPhones. (A smartphone with only two rear cameras? Disgusting!)
If you want to learn more foreign exchange trading knowledge, please click: Trading Education.
