Level 1 · Lesson 4 / 10 · English
Bid, ask, spread and liquidity
4 min reading · Exercises take additional time
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A trading quote usually has two prices. The bid is the price at which you can sell the base currency; the ask is the price at which you can buy it. The difference is the spread. A single line on a chart may not show both sides.
What you will learn
- Choose the correct side of a quote
- Calculate a spread in price units and pips
- Explain why liquidity affects execution
Buying and selling use different sides
With EUR/USD at 1.1000 bid and 1.1002 ask, a market buy normally uses the available ask and a market sell uses the available bid. Actual execution can differ from the displayed quote. To close a buy position you sell; to close a sell position you buy. This is why spread affects both trade direction and the initial unrealised result.
The spread is ask minus bid. It is one trading cost, not necessarily the only one. Commissions, financing or swap, slippage and currency conversion may also apply. Check current account terms rather than applying this example as a KFX pricing promise.
Liquidity is about available trading interest
Liquidity describes how readily an amount can be traded without a large price impact. A quoted price can have limited available size. During news, quiet periods or disruptions, available liquidity may change and spreads may widen. A liquid market still has price risk.
Slippage is the difference between the expected price and the executed price. It can be favourable or unfavourable. Market and stop orders do not generally guarantee an exact execution price. A price on a chart is not sufficient evidence that a particular volume could have traded there.
Why this matters for a small trade
If a planned target is only a few pips, a two-pip spread can be important relative to the intended movement. Compare the full estimated costs with the scenario, but do not assume that a low-cost trade is a good trade. Cost control and directional accuracy are different questions.
Key terms
- Bid
- The available price for selling the base currency.
- Ask
- The available price for buying the base currency.
- Spread
- Ask minus bid.
- Liquidity
- How readily a quantity can trade without substantial price impact.
Hypothetical worked example · Not live market prices
An immediate round trip
- Assume a buy of 10,000 EUR at ask 1.1002 and an immediate close at unchanged bid 1.1000.
- Spread = 1.1002 − 1.1000 = 0.0002 = 2 conventional EUR/USD pips.
- Result = (1.1000 − 1.1002) × 10,000 = −USD 2, before other costs. The market did not need to move for the spread to matter.
| Side | Hypothetical price | Action |
|---|---|---|
| Ask | 1.1002 | Buy 10,000 EUR |
| Bid | 1.1000 | Sell to close |
| Spread cost | 2 pips | USD 2 at this volume |
Simplified educational calculations. Costs, slippage and provider-specific adjustments apply where relevant; these are not actual returns.
Common mistakes to avoid
- Using the ask to estimate closing a long: closing a long involves selling at the bid.
- Treating spread as the total cost: include any applicable commissions and financing.
- Assuming a stop guarantees its price: consider slippage and gaps.
Lesson summary
Buy and sell prices differ. Spread, liquidity and execution affect realised outcomes. Check both sides of the quote and all costs when planning.
Practical exercise
For a hypothetical quote of 1.2050 bid / 1.2053 ask, calculate the spread and the approximate spread cost for 10,000 EUR. Answers: 3 pips and USD 3 before other costs.
Knowledge check
Check your understanding
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Related lessons
Financial education, not personal investment advice. Leveraged Forex and CFDs can lead to substantial losses. Demo practice and correct quiz answers do not guarantee trading success.