You now know what the base and quote currency is in forex trading, but let’s kick it up a notch! Have you heard of the terms “Bid” and “Ask” before? Well, if you haven’t you probably will very soon, so allow us to enlighten you!
Basically, when we buy or sell a currency pair what we’re really doing is buying or selling the base currency.
Therefore, there are two prices: a price to buy the base currency, and a price to sell the base currency.
Now, the Ask price is the price to buy the base currency at, and the Bid price is the price to sell the base currency for.
Let’s have a look at an example!
Say, the EUR/USD Ask price is at 1.22216, and the Bid price is at 1.22200. This means, that to buy the EUR/USD we are going to use the corresponding Ask price, which here is 1.22216, and to sell the EUR/USD the Bid price is 1.22200.
Not that complicated, right?
Also, FYI, the difference between the Ask and the Bid price is called the spread. This spread is basically the cost of trading the corresponding currency pair. Based on our example above, the spread is 1.22216 minus 1.22200 which equals 0.00016, and this is the actual cost for trading the EUR/USD!
Now you know another set of forex basics!
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