Understanding Bid, Ask, Spread, and Swap in Forex Trading
In this lesson, our focus is on essential forex terminology: bid price, ask price, spread and
swap.
Bid and ask (also known as bid and offer) is a two-way price quotation.
Bid price
The first price in the quote, known as the bid price, refers to the highest price a buyer will pay
for a security.
Ask price
The second price, known as the ask or offer price, refers to the lowest price a seller will
accept.
Spread
The difference between the bid and ask prices is known as the spread, which is the cost
of entering a trade. Professional traders closely monitor how wide the spread is for their
preferred trading due to its impact on trading costs.
Swap
A forex swap or a rollover refers to the interest either added or deducted when keeping a
position open overnight. The swap rate triples from Wednesday to Thursday. These rates are
calculated based on the overnight interest rate differential between the respective
currencies. Swap rates have the potential to generate additional profit or loss in a trade.
In our next lesson, we will explore other key definitions in forex trading.