Big Clarification on Bid/Offer

[forexamateur]

I am having some difficulties in understanding the quoting convention of big and small figure

if we have an exchange rate 0.7098/03

can anyone pls tell me what is the offer

is it 0.7103 ?

how do we get the offer?

thanks

[pacifier]

Originally Posted by forexamateur

I am having some difficulties in understanding the quoting convention of big and small figure

if we have an exchange rate 0.7098/03

can anyone pls tell me what is the offer

is it 0.7103 ?

how do we get the offer?

thanks

Hi !

One easy way to remember is
BO = Body Odor = Bid/Offer.
Or
BA = British Airways = Bid/Ask

More importantly though, you'll need to understand it (rather than simple memorizing).

When looking at bid/ask, always look at it from the broker's prospective.

The broker is a profit maximizing entity and as such will try to buy from you as low as possible and sell to you as high as possible.

Bid/Ask is always quoted such that the bid is lower than the ask. Eg. EURUSD 1.2990/95.

The broker's ASK-ing price (if you wishes to buy from him) is the higher of the two (broker sells high). Conversely, the broker will BID for your security at the lower price (broker buys low).

When do you pay the spread ?

The easiest to remember is you pay it whenever you "buy".

Using EURUSD 1.2990/95 as an example:

If you are going Long EURUSD, you are BUY-ing the currency. So, you will get it at 1.2995 (i.e. the price that the profit maximizing broker will sell EURUSD to you at). When you close the position, you sell it back to the broker at the price that the broker is willing to buy at (i.e. the BID price).

Conversely, if you are going Short EURUSD, you pay the spread when you buy back your position at close.

So,

Bid/Ask = Sell/Buy


Hope that helps,

Pacifier

[rhodytrader]

Originally Posted by forexamateur

if we have an exchange rate 0.7098/03

can anyone pls tell me what is the offer

is it 0.7103 ?

Nice explanation of Bid/Offer and Bid/Ask, but I don't think that quite answers the question asked. The very simple answer is Yes. For the given quote, the ask price would be 0.7103. For the same of space saving they just chopped off the first digits of the quote. Obviously, given the spread, the ask has moved up to the next figure.

[forexamateur]

Originally Posted by rhodytrader

Nice explanation of Bid/Offer and Bid/Ask, but I don't think that quite answers the question asked. The very simple answer is Yes. For the given quote, the ask price would be 0.7103. For the same of space saving they just chopped off the first digits of the quote. Obviously, given the spread, the ask has moved up to the next figure.

Thanks John. Yeah I do know which one is bid and which is offer. what I cudnt understand is about the spread moving to the next figure.
if for eg i have 1.5390/00 , what is the offer?

is it 1.5400?

I am doing some studies in forex. can pls help with that.

Thanks a lot John.

[rhodytrader]

Originally Posted by forexamateur

if for eg i have 1.5390/00 , what is the offer? is it 1.5400?

As I indicated before, you've got it exactly right. The offer is 1.5400 for that example.

[forexamateur]

Thanks Mr Forman and Pacifier as well.

[drifting]

All the help coming from you gents is very valuable and welcome.
May I ask a basic question which seems related to thes bid/offer discussion (at the risk of being laughed at? Haha!) I believe that when buying a pair I should include the spread but not when I am selling? Is this so? If so, how exactly is that done please?
I have never been able to find a clear explanation of it and since I am now ready to open a demo account, I need to fully understand this concept. A clear explanation would be very much appreciated.

[rhodytrader]

Originally Posted by drifting

I believe that when buying a pair I should include the spread but not when I am selling? Is this so? If so, how exactly is that done please?

When you trade forex on a retail basis, you buy at the ask/offer and sell at the bid. Regardless of whether you are going long or short, as soon as you get in the trade, you have a negative P&L equal to the spread. Thus, the market needs to move in your favor by more than the spread for you to profit.

Does that help?

[drifting]

Thanks a lot for your prompt reply John.

Let's say we are dealing with a spread of 5 pips and I want to place a limit order at a particular price.

If I am buying, would I add 5 pips to my intended entry price, in the belief that the broker is going to deduct his 5 pips spread before allowing my trade at the entry price that I want to use?

I would like to understand when the broker takes his spread so that I can incorporate that into setting my target for the trade.

I'm sorry if I sound dumb in this but somewhere in the back of my mind I seem to remember something about adding the spread to my intended entry price when going long but not needing to bother when going short. I am not sure but I believe that had something to do with which of the prices is used in the charts. I would just like to understand this clearly before going ahead with a demo account.

Thanks again for your help.

[rhodytrader]

Originally Posted by drifting

Thanks a lot for your prompt reply John.

Let's say we are dealing with a spread of 5 pips and I want to place a limit order at a particular price.

If I am buying, would I add 5 pips to my intended entry price, in the belief that the broker is going to deduct his 5 pips spread before allowing my trade at the entry price that I want to use?

I would like to understand when the broker takes his spread so that I can incorporate that into setting my target for the trade.

I'm sorry if I sound dumb in this but somewhere in the back of my mind I seem to remember something about adding the spread to my intended entry price when going long but not needing to bother when going short. I am not sure but I believe that had something to do with which of the prices is used in the charts. I would just like to understand this clearly before going ahead with a demo account.

If you are using a chart to pick a buy/sell point you need to know what price the chart data is using. Many, but not all, charts use the bid. Some use the mid point, halfway between the bid and offer.

When you enter a buy limit or stop, you are basically saying "When the offer price hits X I want to buy". Similarly, for a sell order you saying "When the bid price hits X I want to sell". If you are using a bid based chart, then when you buy you would need to add the spread to the chart point to get your order price, but when you sell you could just use the displayed price. If the chart is using a mid rate, you would add half the spread for buy orders and subtract half the spread for sell orders.