Forex Trading has a number of terms used that one needs to understand, knowing them and knowing how to read them. In forex, currencies are always in pairs, and these pairs consist of two prices (Quotes), and these prices are referred to as Bid and Ask.
- A bid is the selling price, in this case, the trader buys the base currency in exchange for the quote currency.
- Ask is the buying price, in this case, the trader sells the base currency in exchange for the quote currency.
The difference thereof is called a spread – and the smaller the spread is, the more profitable to the trader. if you have AUD/USD with a bid price of 0.9262 and an ASK price of 0.9265, the spread of AUD/USD is 0.9265 – 0.9262 = 0.0003, thus 3 Pips. Standard digits are 0.0001 and 0.01 if you are using 5 digits fractional platform, you may add 1 more zero decimal digit at the end of the given prices.
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You Buy using the ASK price while you simultaneously use the bid price to sell it back
You Sell using the BID price while you simultaneously use the ASK price to buy it back
in the AUD/USD pair, 3 point is the trader’s floating loss of 3 pips, these are just spread charges.
If you believe AUD is gonna be stronger than USD, go LONG (BUY) at 0.9265, or go SHORT (SELL) at 0.9262