Glossary
Bid / Ask
The two sides of a quote — the bid is where you can sell, the ask is where you can buy; the gap between them is the spread.
Bid / Ask, explained
Every market shows two prices. The bid is the highest price a buyer is willing to pay (the price you sell at), and the ask (or offer) is the lowest price a seller will accept (the price you buy at). The ask is always the higher of the two.
The difference between them is the spread, which is effectively the cost of entering a trade. You begin every position fractionally in the red by the size of that spread, because you cross from one side of the quote to the other to get filled.
Understanding bid/ask explains why a buy trade does not start at break-even: you buy at the ask but the position is marked against the bid, so price must move through the spread before you are in profit. The same logic flips for a sell, where you enter at the bid and the position is valued against the ask.
It also explains where your stops and targets really sit. A buy's stop loss is triggered on the bid, and a sell's stop is triggered on the ask — so in a fast market with a widening spread you can be stopped out even though the 'price' you were watching never quite reached your level.
On the desk we account for the spread when placing tight stops, especially on pairs or sessions where it widens. A 5-pip stop on a pair with a 2-pip spread is really giving the trade only about 3 pips of room once the cost of entry is counted.
Frequently asked questions
- Why is the buy price higher than the sell price?
- Because the ask (buy price) reflects the lowest a seller will accept and the bid (sell price) the highest a buyer will pay. The gap between them is the spread, the market-maker's and broker's compensation for providing liquidity.
- Which price triggers my stop loss?
- For a buy, the bid must reach your stop level; for a sell, the ask must reach it. This is why a widening spread can stop you out even when the price you were watching has not technically touched your line.
Related terms
Spread
The gap between the bid and ask price — the built-in cost of opening a trade.
ReadLiquidity
The pools of resting orders price is drawn toward — typically clustered above highs and below lows.
ReadSlippage
The difference between the price you expected and the price you actually got on a fill.
ReadPip
The smallest standard price move in a currency pair — the unit traders use to measure gains, losses and spreads.
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Vocabulary is the easy part. See how the desk turns these concepts into structured trades with defined risk on every position.