Bid/Ask Explained for New Traders (Part 1) Forex trading can seem intimidating at first, but understanding the basics is the first step toward becoming a confident trader. One of the most fundamental concepts in Forex is the
bid/ask price, which lies at the heart of every trade. In this article, we'll break down the basics of Forex trading, including currency pairs, market hours, leverage, and the bid/ask concept, to help you get started on the right foot.
What is Bid/Ask? The bid/ask price represents the two prices at which a currency pair can be traded. The
bid price is the price at which the market (or your broker) is willing to buy the base currency from you, while the
ask price is the price at which the market is willing to sell the base currency to you. The difference between these two prices is called the
spread, and it represents the cost of trading.
For example, if the EUR/USD pair has a bid price of 1.1000 and an ask price of 1.1005, the spread is 5 pips.
Key Principles of Forex Trading [list=1]
- Currency Pairs
Forex trading involves buying one currency while selling another. Currency pairs are categorized into three types:
- Major pairs: EUR/USD, GBP/USD, USD/JPY (most liquid and widely traded)
- Minor pairs: EUR/GBP, AUD/NZD (less liquid, no USD included)
- Exotic pairs: USD/SEK, GBP/TRY (involve emerging market currencies)
- Market Hours
The Forex market operates 24 hours a day, five days a week, across four major trading sessions:
- Sydney
- Tokyo
- London
- New York
Understanding market hours is crucial because liquidity and volatility vary during different sessions.