Bid and Ask

Most stock brokers charge their clients a flat fee for commissions regardless of the number of shares bought or sold. Every time an action is made (buy or sell), a trader would have to pay that commission. In Forex, you don’t have to pay a commission when you buy a currency and then pay again when you sell it. The only damage it does to your account is that you’re already down a certain amount depending on the difference between the bid and ask price for the currency pair.

Bid and ask can be confusing to some. But to make it more transparent, lets say you and I are doing business together and you’re trading your good which is a monkey. Bid and ask price doesn’t refer to your interest but instead it refers to me. I am bidding a price where I’m willing to pay for your monkey, therefore, on your perspective, bid is the amount you’re selling the monkey to me.

Now I realized that the monkey is such a pain in the neck as a pet so I decided to offer it back to you, asking you to take the monkey at a price you’re willing to pay. Therefore, ask or offer is the amount you’re willing to shell out to buy the monkey from me.


Previous | Next

Stocks | Forex | Options | Economics | Bonds | History | Language learning | Technology | Technical Analysis | Fundamental Analysis
Copyright © 2014 econtrader | Risk disclosure | Terms of Use