Day Trading Basics: The Bid Ask Spread Explained

The customer service representatives manning the dealing desk will then routinely widen these dealing spreads to three pips when quoting the price to their clients. The depth of the bids and the asks can have a significant impact on the bid-ask spread, making it widen significantly if one outweighs the other or if both are not robust. Constructing a Trade Setup Part 2. Jer Thanks for the information on "iceberg" orders. In simple terms, a security will trend upward in price when buyers outnumber sellers, as the buyers bid the stock higher. Greek warning to EU exit.

The Forex Trading Bid & Ask Prices and Spread. This page covers everything you need to know about the bid and ask prices in the online Forex trading market, From the definition of Forex bid & ask prices, to the use of the bid & ask spread.. A Forex Trading Bid price is the price at which the market is prepared to buy a specific currency pair in the Forex .

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Rodrigo de Azevedo 5 Amir 2 8 8. You would pay more simply because the available sellers that are going to sell to you are not willing to settle for less than Probably since the last trade at It could easily have been: See also past answers about bid versus ask, how transactions are resolved, etc.

Basically, "current" price just means the last price people agreed upon; it does not imply that the next share sold will go for the same price. Actually there is often significant "hidden" liquidity. The most common form is likely "iceberg" orders. Here, an order is entered, say, to buy shares, but it has a "max floor" of - meaning to display at most shares at a time. If I'm sold the shares, the quote will automatically update to buy another at the same price.

So someone could sell me shares even though they think I only want to buy Very often, if you enter a market order to sell more than the displayed quantity, you will be filled at the current bid price without moving into lower price levels. Jer Thanks for the information on "iceberg" orders. Rea May 28 '11 at 8: Tim No, I did mean If you enter a market order to buy, you would pay somebody's asking price.

Your "bid" in a market order is essentially "the lowest price somebody is currently asking". A market order does not limit the price , whereas a limit order does limit what you are willing to pay. Rea Jun 18 '12 at Both prices are quotes on a single share of stock.

I do get charged additional brokerage for conducting transactions regardless of the spread. This answer manages to totally not answer the question as asked. No offense will be taken. JohnFx You're most welcome, and thank you for your positive attitude and your service to the SE community. I opted for a comment in this case because I lack the reputation score to downvote, this being my first visit to this particular SE site. The width of a forex trading spread quoted by a broker or market maker tends to depend on a number of factors.

The first and foremost is the currency pair involved, since different currency pairs tend to have different average bid ask spreads. This is because they have the highest number of active market makers who see considerable trading volume in those currency pairs each trading day and these traders often compete with each other for customer business by showing clients tighter dealing spreads. Dealing spreads also tend to decrease in a market with a higher volume because this implies that more traders are involved as buyers and sellers in such a market.

This raises the chances of a market maker finding interested buyers and sellers at a particular point in time. Also, when more traders are keen to buy, the exchange rates quoted for a particular currency pair tend to rise because market makers raise their offers to reflect that they are keener to buy than sell to square their positions. When more traders are willing to sell a currency pair, the exchange rate will drop because market makers are probably becoming long from customer sales and therefore drop their bids.

In high volume markets like the forex market with plenty of buying and selling activity occurring at the same time, this situation tends to result in a concurrent rise in bids and a decline in offers that naturally tightens the observed market dealing spread.

This phenomenon helps explain why dealing spreads remain so tight in the high volume forex market when compared to many other financial markets — despite the fact that no other form of commission is typically charged on retail forex transactions that will help compensate the market maker for the risk they take on.

Furthermore, other factors can affect and even change the prevailing bid ask spread being quoted for a particular currency pair. In addition to trading volume, these factors include things like market liquidity and the presence of other market makers available to quote prices and hence compete for customer business. Another important factor that affects the prevailing forex spread being charged by market makers and brokers is the current level of volatility.

This is closely related to the risk of sharp exchange rate movements, which also tends to influence the width of the bid ask spread since market makers quoting prices in a volatile market take on a greater risk in doing so and so quote wider prices to compensate.

The dealing spread is especially susceptible to being widened if market makers have a good reason to expect sudden and sharp movements, such as those wild market swings that are often observed affecting the prevailing dealing spread around the announcements of key economic data.

An example of economic data that might affect the dealing spread would be the U. This key data release can quickly and notably impact the market valuation of currency pairs that include the U.

Dollar, especially if the observed number differs considerably from the number expected by the overall consensus of market analysts. Another example of a situation that might cause forex dealing spreads to widen would be around the outcome of a pending political election or a national referendum like the Brexit vote.

Such news events can notably affect the relative valuation of the relevant currency and often result in substantial exchange rate swings that make quoting prices much riskier for the market maker. Since each currency pair tends to have its own typical dealing spread when quoted through a particular broker or market maker, it can help a trader who is sensitive to the width of a dealing spread to know which currency pairs tend to have the tightest spreads.

A lower priced stock, with lots of buyers and sellers participating in it, will have a 0. The Bid Ask Spread can fluctuate as the price moves and is how the price moves and the posted Bids and Offers are filled by other traders.

The highest Bid and the lowest Offer are displayed as the current price in trading platforms. The current Bid Ask Spread is Heavily traded forex pairs will typically have a Bid Ask Spread of 2 pips or less with most brokers. In figure 2 the spread is less than half a pip.

BREAKING DOWN 'Bid-Ask Spread'

In forex, a spread is the difference between the bid and ask prices. Explore examples on how bid/ask spreads work and learn how to trade with ThinkMarkets. In forex, a spread is the difference between the bid and ask prices. Explore examples on how bid/ask spreads work and learn how to trade with ThinkMarkets. Day Trading Basics: The Bid Ask Spread Explained (usually) one cent if the stock is priced below $ Heavily traded forex pairs will typically have a Bid Ask Spread of 2 pips or less with most brokers. In figure 2 the spread is less than half a pip. Take Advantage of the Bid Ask Spread. What is a 'Bid-Ask Spread' A bid-ask spread is the amount by which the ask price exceeds the bid price for an asset in the market. The bid-ask spread is essentially the difference between the.