The quotation of a currency pair consists of two prices (Bid and Ask).
Bid (usually lower than Ask) is the price at which a brokerage is willing to buy the base currency in exchange for the quote currency (or we could say, bid is the trader’s selling price).
Ask (usually higher than Bid) is the price at which a brokerage is willing to sell the base currency in exchange for the quote currency (or we could say, offer or ask is the trader’s buying price).
|Bid (or Sell)||Price at which trader will get while he sells|
|Ask (or Buy)||Price at which trader will get while he buys|
|Bid||Lower price than Ask|
|Ask||Higher price than Bid|
|Spread||The difference of Bid and Ask|
From the above image, you can see that EUR/USD has Bid 1.12518 and Ask 1.12525. Or simply can be said 1.12518/25. GBP/USD has Bid 1.54960 and Ask 1.54970. Or simply can be said 1.54960/97.
|Spread of EUR/USD above is 1.12525 – 1.12518 = 0.0000(7), that is 0.7 PIP or 7 points|
|Spread on GBPUSD above is 1.54970 – 1.54960 = 0.0001(0), that is 1 PIP or 10 points|
|Spread on USDJPY above is 123.533 – 123.523 = 0.01(0), that is 1 PIP or 10 points|
If you open Buy (going Long), you buy with Ask price, and will have to use Bid price while selling it back (liquidating/closing, stop loss, and taking profit will also use Bid)
If you open Sell (going Short), you sell with Bid price, and will have to use Ask price while buying it back (liquidating/closing, stop loss, and take profit also use Ask)
|Trade||Open With||Close with (also TP & SL)|
|Buy (Long)||Ask Price||Bid Price|
|Sell (Short)||Bid Price||Ask Price|
TP = Take Profit
SL = Stop Loss
While we are Buying with Ask, we have to pay attention to Bid at forex quote table / list. Bid must be HIGHER than Ask Price we initially bought (the price at which we opened the position) in order to earn Profit.
While we are Selling with Bid, we have to pay attention to Ask at forex quote table / list. Ask must be LOWER than Bid Price we initially sold (the price at which we opened the position) in order to earn Profit.
If you open BUY EUR/USD at 1.12525 (Ask), in this case, if current Bid price is still at 1.12518, means that your position is at floating loss of 0.7 PIP (or 7 points). To earn profit you have to wait until current bid price goes above 1.12525.
You may notice that each time you open a new position, there are initial negative pips at the SAME amount as the spread of corresponding pair you use. This initial negative pips are caused by spread charges.