The offer of a price where traders can buy the base of a currency pair. This price is higher than current market price and the opposite of the bid price. If the price is 1.25040/45, the ask is the “45” part, which is the price the market will sell to you at (1.25045). You can buy the base currency for 1.24045.
The price where traders can sell the base of a currency pair. It is the opposite of the ask price. It is the price where the market is prepared to buy the currency pair from you at. If you’re looking to sell a pair that shows 1.2040/45, the market is prepared to buy the currency pair from you at 1.2040; which subsequently is the price you’re selling at.
A middleman whose job is to execute buys and sells in the market for their clients (traders).They receive a commission/fee for matching buyers and sellers against each other.
A number of currency units used to place a buy or sell position. View micro, mini, and standard lot. Also view contract size.
A trading platform that allows you to place trades with your broker and view the market.
The amount of pips between the bid/ask price. Multiply the spread by your lot size to see what your overall drawdown will be when you enter a trade.
BeginnerEarly Stages for Beginners8 Topics
Forex Terminology11 Topics
- Major and Minor Currency Pairs
- Basic Forex Terminology
- Pips & Ticks
- The Broker & The Spread
- What is a Lot?
- Stop Loss & Take Profit
- Margin & Leverage
- Retracement & Reversal
- When Can I Trade Forex? Sessions - Market Open and Close
- 3 Types of Analysis (Technical, Fundamental, Sentiment)
- 3 Ways a Market Can Go (Up, Down, Sideways)
Margin & Leverage2 Topics
Personal Psychology Questions2 Topics
Psychology for Beginners7 Topics
IntermediateIdentifying Scams2 Topics
Brokers for Beginners5 Topics
Technical Analysis13 Topics
- Types of Charts
- Understanding Japanese Candlesticks
- Candlestick Patterns For Beginners
- Single, Double & Triple Candlestick Patterns
- Support and Resistance
- Confluences w/ Candlesticks & Support & Resistance
- Counter Trend Trading/ Counter Trend Lines
- Moving Average
- Top-Down Analysis
- Consolidation Trading (Breakout, Retest, Continuation)
Market Structure5 Topics
CompletionRisk Management for Beginners8 Topics
Fundamental Analysis9 Topics
AdvancedUsing Indicators6 Topics
Technical Analysis (Part 2)8 Topics
The Broker and the Spread
A broker is essentially someone who executes your trades in the market. They are the ones who connect you to your bank account, allow you to trade on their platform, and let you place trades with their brokerage.
You don’t pay the broker a monthly fee or anything. Some brokers make their money off of a small commission, but most brokers make their money off the spread of each trade. Luckily for you, the cost is already implemented into the price we see when we’re about to place a trade and it’s barely noticeable. To understand how the cost is calculated, let’s take a look at something called the bid and the ask price.
EXAMPLE: All Forex pairs are quoted with two prices: the bid and the ask price. Here we can get a better understanding of how our brokers end up making money!
When you look at MetaTrader 4 OR your broker’s platform, you’ll see a pair such as GBP/USD read as 1.8812/15. The first is the bid, the second is the ask price.
The BID, in this case, 1.8812, is the price at which your broker will buy the pair, whereas the ask, in this case, 1.8815, is the price that your broker will sell it.
Now, the definitions of the bid and the ask are not necessarily what needs to stick in your brain. The most important thing about them is how much money the broker makes per trade, and how much money you’ll be losing the minute you click buy or sell. All of this comes from the spread.
The SPREAD is the difference in pips between the bid and the ask price. The minute you open a trade, you will automatically be down a certain amount due to the broker taking his or her fee. This all depends on two things: the spread and your lot size. No need to put those math skills to work – the commission you pay your broker is already built into the cost, and your MetaTrader account will do that for you!
With the example above, the spread would be 3. Because 1.8812/15, there’s a 3 pip difference between the 12 & 15. Since the spread is 3, whatever lot size you use is MULTIPLIED by the spread (3) to get your broker fee and your immediate drawdown.
NOTE: We will discuss lot size in detail in the next section. We briefly stated earlier that this calculation was what we used to figure out how much money we were making and/or losing. While a pip shows us how far price is moving, a lot size is how many units we want to buy or sell. We’ll discuss this immediately in the next section.
EXAMPLE: If you used a .10 lot size, and the spread was 3, the minute you opened the trade, you would be losing -$0.30 (30 cents). That’s how much you paid the broker due to the current spread and your lot size.
If your lot size was .50 and the spread was 3, you would instantly be down $-1.50 the minute you clicked buy or sell.
Another scenario is an example we have below with a spread of 13.