Bid and Ask, Long and Short, and Spreads: The Essentials of Trading 

When you trade Forex, you’ll often come across terms like bid, ask, long, short, and spreads. These concepts are central to understanding how trades work and why prices move. Don’t worry—we’re going to break it all down into simple terms with examples so you can see how it all fits together. 

What Are Bid and Ask Prices? 

Imagine you’re at a market, and you want to buy apples. The vendor says, “I’ll sell you apples for $1 each, but if you want to sell me your apples, I’ll only pay $0.90 each.” This is exactly how bid and ask prices work in Forex. 

Ang bid price is the highest price a buyer is willing to pay for a currency. The ask price is the lowest price a seller is willing to accept. For example, if EUR/USD has a bid price of 1.1000 and an ask price of 1.1002, the difference between them is small but significant. This difference is called the spread, and we’ll cover that shortly. 

When you want to buy a currency, you pay the ask price. When you want to sell it, you get the bid price. So, the ask is always slightly higher than the bid. 

What Does Long and Short Mean? 

Now let’s talk about long and short positions. These terms describe the direction of your trade. It’s simpler than it sounds: 

• If you go long, you’re buying a currency pair because you believe its value will go up. For example, if you buy EUR/USD, you’re expecting the Euro to strengthen against the Dollar. 

• If you go short, you’re selling a currency pair because you think its value will go down. Using the same example, if you sell EUR/USD, you’re predicting the Euro will weaken against the Dollar. 

Think of it like this: going long is like betting on the currency pair to rise, while going short is like betting on it to fall. 

What Are Spreads and Why Do They Matter? 

Remember the difference between the bid and ask prices? That’s the spread. The spread is how brokers make money. It’s a small cost built into every trade. Let’s go back to our EUR/USD example with a bid price of 1.1000 and an ask price of 1.1002. The spread is 0.0002, or 2 pips. 

Why does the spread matter? It affects your profit. When you enter a trade, you start slightly in the negative because of the spread. For example, if you buy EUR/USD at 1.1002, the market needs to rise above 1.1002 for you to start making a profit. The lower the spread, the less the market needs to move in your favor to cover this cost. We know this, that’s why in Fx-k our clients benefit of the lowest spread in the industry! 

How Do These Concepts Work Together? 

Let’s put it all together with an example. Imagine you believe the Euro will strengthen against the Dollar. You decide to go long on EUR/USD at the ask price of 1.1002. The bid price is 1.1000, so the spread is 2 pips. If the market moves to 1.1020 and you close your trade, your profit would be the difference between the bid price at that point (1.1020) and the ask price you initially paid (1.1002), in this example 18 pips. 

If you thought the Euro would weaken, you could go short instead. In this case, you’d sell at the bid price and buy back later at a lower ask price to make a profit. 

Why Understanding These Terms Matters 

Knowing about bid and ask prices, long and short positions, and spreads helps you make better trading decisions. It also helps you understand the costs involved in trading and how to plan your entries and exits more effectively. By mastering these basics, you’re building a strong foundation for your Forex journey. 

Konklusyon 

Bid and ask prices, long and short positions, and spreads are essential parts of Forex trading. They might seem small, but they have a big impact on your trades and your profits. In the next lesson, we’ll explore the different types of Forex orders and their significance in executing trades. Keep learning—you’re doing great!