What are Ask price, Bid Price, Spread and Pips in Forex?

What is Ask price in Forex?

This is the price of the base currency (in terms of quoted currency) at which an investor is going to buy the currency price. In simple words we can say that this is the price at which we buy base currency by paying in quoted currency.

For example: there is a pair EUR/USD, the ask price is quoted as 1.4362 simply means that
you need to pay 1.4362 US Dollar for purchasing one Euro.

What is Bid Price in Forex?

This is the price of the base currency at which we are going to sell the base currency (by taking quoted currency). This is just opposite to ask price. In other words we can say that this is the price at which we sell base currency, for which some other person (any online trader) pay us in quoted currency.

For example: if the bid price for EUR/USD is 1.4359 then it means that we can sell each Euro for 1.4359 US dollar.

Tip: Always remember that, Bid Price is always few pips less than the Ask Price or Ask price > Bid price.

Now there may be a question in your mind that why there is a difference between Ask price and Bid Price? Why Ask Price is greater than the Bid price? For this you need to have the knowledge of Spread, so as given below.

     What is spread in Forex?

Spread is the difference between the ask price and the bid price of a currency pair. This difference is different for different currency pairs.

     These differences (spread) of few point or pips between ask price and bid price is basically created by the Forex brokers which keep these pips as their fees. Or in other words we can say that this is the brokerage which a broker takes from its trader while buying or selling a currency.

For example: If BID/ASK for EUR/USD is 1.4050/1.4053. It means that the spread is 3 pips (1.4053-1.4050).

Tip: The lower is the Spread the higher is the benefit for us (as a trader).

Now you should know that what these points or pips are? In order to clear the topic read below.

What is a PIP in Forex?

PIP is the abbreviation for percentage in points (or price interest point). In currency market this term is used to reflect the smallest change in the price of a currency. Pips are also referred as points or ticks.

            In other words you can say that this is the smallest move which a price of currency takes in either direction.

For few currencies it is calculated as fourth point after the decimal but for few currencies it is also calculated as second point after the decimal

For example: if the price of the currency pair EUR/USD moves from 1.4100 to 1.4125 simply means that it has risen by 25 pips. But for USD/JPY if price moves from 110.20 to 110.50 means that price had moved by 30 pips

Tip: All currency pairs are quoted with 4 decimal points except the pairs with JPY as the quoted currency (second currency in pair) like EUR/JPY, USD/JPY and GBP/JPY etc.

Tip2: One pip is worth 10 $ for all currency pairs with USD as quoted currency for a standard lot.