Bid and Ask Prices Explained:
How Market Quotes and Spreads Work?
Understand bid and ask prices, how market quotes work, what the spread means, and why available prices can change across financial markets.
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When viewing a financial instrument on a trading platform, you may see two prices instead of one. These are known as the bid price and the ask price.
The bid and ask prices show the available prices for selling and buying an instrument at a particular time. The difference between them is called the spread.
This pricing structure appears across many financial markets, including forex, shares, indices, commodities, exchange-traded funds and derivative products. The exact quote format may vary by instrument and platform, but the basic principle remains the same.
This article explains how bid and ask prices work, why two prices are shown, what can affect the spread and how market conditions may influence available quotations.
What Are Bid and Ask Prices?
The bid price is the available price for selling an instrument.
The ask price, sometimes called the offer price, is the available price for buying an instrument.
For example, a platform may display the following quotation for EUR/USD:
| Currency Pair | Bid Price | Ask Price |
|---|---|---|
| EUR/USD | 1.1000 | 1.1002 |
In this example:
- 1.1000 is the available bid price.
- 1.1002 is the available ask price.
- The difference between the two prices is the spread.
The bid price is normally lower than the ask price. This difference reflects the way market quotations are structured and can vary according to the instrument, platform and market conditions.
Why Are There Two Market Prices?
Financial markets involve buyers and sellers with different price expectations.
The bid price represents the price available for a seller. The ask price represents the price available for a buyer. A transaction may take place when an order can be matched or executed at an available price, subject to market conditions and the provider’s execution arrangements.
Two prices are shown because buying and selling are not identical actions. The available price for buying an instrument may differ from the available price for selling it at the same moment.
This structure is common in many markets. It can be seen in currency pairs, listed shares, exchange-traded funds, commodities and other financial instruments.
How Bid and Ask Prices Work in Forex?
Forex prices are quoted in currency pairs, such as EUR/USD, GBP/USD or USD/JPY.
A forex pair always includes two currencies:
- The first currency is the base currency.
- The second currency is the quote currency.
For example:
EUR/USD
Bid: 1.1000
Ask: 1.1002
This quotation shows the euro against the US dollar.
When reviewing a forex quote:
- The bid price is the available price for selling the base currency.
- The ask price is the available price for buying the base currency.
In this example, EUR is the base currency and USD is the quote currency.
A sell instruction on EUR/USD is linked to the bid price. A buy instruction on EUR/USD is linked to the ask price, subject to the product terms and available market conditions.
How to Read a Market Quotation?
A market quotation may include several pieces of information.
Consider this example:
EUR/USD
Bid: 1.1000
Ask: 1.1002
| Item | Meaning |
|---|---|
| EUR/USD | The euro quoted against the US dollar |
| EUR | Base currency |
| USD | Quote currency |
| 1.1000 | Available bid price for selling the base currency |
| 1.1002 | Available ask price for buying the base currency |
| 0.0002 | Difference between bid and ask prices, known as the spread |
Some platforms may also display information such as:
- Daily high and low prices
- Percentage movement
- Trading hours
- Market status
- Chart data
- Volume information where available
- Contract specifications
- Margin requirements
- Product-related charges
The layout and data shown can vary by platform and instrument.
Why Can Spreads Change?
Spreads are not always fixed. They can change as market conditions change.
Several factors may affect the difference between bid and ask prices.
Market Liquidity
Liquidity refers to how easily an instrument can be bought or sold without causing a significant change in price.
During periods of higher market activity, more price quotations may be available. During periods of lower liquidity, available prices may be further apart.
Time of Day
Market activity can vary by time zone and trading session.
For example, forex activity may change as major financial centres open and close. Some instruments may have more active periods during the trading hours of their relevant exchange or market.
Economic Announcements
Economic releases, central-bank decisions, company announcements and other major events can affect market conditions.
During these periods, prices may move quickly and spreads may change.
Public Holidays and Market Closures
Public holidays, reduced trading hours and market closures can affect liquidity and price availability.
Not all markets follow the same holiday schedule. Product-specific trading hours should always be checked through the relevant platform or provider.
Instrument Type
Different instruments can have different pricing characteristics.
For example, a widely traded currency pair may have different quote conditions from a less frequently traded currency pair. A listed share, commodity contract or ETF may also have its own market structure and trading schedule.
Bid and Ask Prices During Different Market Conditions
Market quotations can change quickly, especially during periods of significant activity or uncertainty.
In stable conditions, bid and ask prices may remain relatively close together for a period. In faster-moving conditions, both prices can change frequently.
The following factors may affect quotations:
- Changes in supply and demand
- Economic releases
- Central-bank statements
- Political developments
- Company announcements
- Global events
- Trading-session changes
- Reduced liquidity
- Product-specific conditions
The price displayed is a point-in-time quotation. It does not indicate where the price may move next.
🔖 Summary
Bid and ask prices are the two prices commonly shown in a market quotation.
The bid price is the available price for selling an instrument. The ask price is the available price for buying it. The difference between the two prices is called the spread.
Bid and ask prices can change throughout the day because of liquidity, market activity, economic announcements, trading hours and other market conditions. Understanding these terms can help readers interpret market quotations more clearly.
Frequently Asked Questions
What is the difference between bid and ask prices?
The bid price is the available price for selling an instrument. The ask price is the available price for buying an instrument.
Why is the bid price usually lower than the ask price?
The difference between the two prices is known as the spread. This is a common feature of market quotations and can vary according to the instrument and market conditions.
What is a bid-ask spread?
The bid-ask spread is the difference between the bid price and ask price.
Which price applies when buying a currency pair?
For a buy instruction, the available ask price is generally relevant, subject to market conditions and product terms.
Which price applies when selling a currency pair?
For a sell instruction, the available bid price is generally relevant, subject to market conditions and product terms.
Can the bid and ask prices change quickly?
Yes. Prices can change quickly during periods of market activity, reduced liquidity, economic announcements or unexpected events.
Is the chart price always the price available for an order?
Not necessarily. A chart may display a mid-price, last-traded price, bid price, ask price or another platform-defined quotation. Check the platform’s price-display information for details.
Risk Warning
This content is for educational purposes only and does not constitute financial advice; trading involves significant risk, and you may lose your capital.
GTCFX operates as a multi-regulated group of companies, clients are kindly advised to confirm the specific legal entity, regulation, and jurisdiction under which they are being onboarded.