Let’s go directly to the Dexly trading platform and see in practice what the spread is and how to take it into account when trading. Let’s assume that we have a EURUSD chart. The currency pair is EURUSD. We see the current price at 1.3293. If we click on “open a new order”, we will see that we have 2 prices – the price at which we can sell (this price is called the Bid) and the price at which we can buy (this price is called the Ask).
Why two prices, when there is only one price on the chart? A comparison to a currency exchanger is very helpful here. Everyone has at least once used the services of a foreign exchange office, exchanged euros for dollars, euros for pounds or any other currency. The bank always gives 2 prices. The price at which they can buy currency from you and the price at which they can sell it to you.
And the price at which the bank can buy currency from you is usually slightly lower than the official rate of the Central Bank. And the price at which the bank can sell you foreign currency is slightly higher than the official rate of the Central Bank. Why? Because the bank earns on this difference. Every time it sells you currency at a slightly higher price and buys it from you at a slightly lower rate than the official rate, the bank makes money for itself.
It’s exactly the same in Forex. This difference between the prices at which you can sell and the prices at which you can buy is nothing else but the spread. And that spread goes to the broker as a commission; the broker makes money on the spread. If you can earn 40 pips on every trade, lose 10 pips, earn 500 pips (depends on your forex strategy, how you trade), then the broker always earns a fixed amount on each of your trades.
At the price of Bid, the following orders are executed: Sell, Sell limit, Sell stop, Stop loss and Take profit for the position to buy.
At the Ask price triggered applications: Buy, pending orders Buy limit, Buy stop, Stop Loss and Take Profit for a sell position.
Attention! The Ask price is disabled by default on the charts. You can enable its display by right-clicking on the chart and selecting “show Ask line”.