Bid, Ask, Spread and SWAP

In our last video we analysed the various types of pending orders. Today we will discuss the meaning of the bid price, the ask price, the spread and what is a SWAP.

Until now, we referred to an exchange rate as being quoted in one price. In practice, things are different. When you start using a trading platform, you will see that exchange rates are quoted in two prices.

The first price in the quote is the “bid price”. It is the price at which the broker is willing to buy from you. In simple words, it is the price you sell.

The second price is the “ask” or “offer” price. It is the price at which your broker is willing to sell you the pair. It is the price you buy.

The difference between the bid and the ask prices is called the spread. It is your cost for entering a trade. Professional traders pay particular attention to how wide the spread is for their favorite trading instruments exactly for that reason.

A forex “Swap” or a “Rollover” is the interest added or deducted for holding a position open overnight. From Wednesday to Thursday, the swap is tripled. The swap rates are calculated as the overnight interest rate differential between the two currencies. Swap rates can potentially generate extra profit or loss to one’s trade.

In our next video, we’ll discuss other key definitions.