Experiences in forex trading, by a special way.

November 14, 2022

Bid Price, Ask Price And Spread

Once you have a good understanding of the BidAsk and Spread prices, you will know how to avoid letting the broker scan overnight orders in the forex market, this is the basic content that every new trader entering this market must understand.


1. BID - ASK - SPREAD

When trading a forex currency pair, or when looking at the foreign currency list prices at banks, you always see that the listed price has 2 prices in pairs, that is BID PRICE and ASK PRICE.

The BID price is the write-in price, the ASK price the post-record price, and the BID price is always lower than the ASK price.

The BID price is the ACCEPT BUY price - that is, the price we will SELL.

The ASK price is the ACCEPTANCE SELL price - that is, the price we will BUY.

For example, we trade forex with EUR/USD currency pair, the quoted price is:

BID 1.20022 / ASK 1.20042

That means, if we enter a buy order, buy at ask price 1.20042, if we enter a sell order, sell at bid price of 1.20022.

And the difference between Bid price and Ask price is called Spread (unit is pip or point).

Tips: When trading forex on the MT4 platform (Metatrader 4), you should let the price chart display both bid and ask prices (to control spread elasticity, especially when entering orders) by pressing the key F8 then select the second tab "Common" and tick the box "Show ask line".

2. BID PRICE - ASK PRICE OF FOREX TRADE ORDER

With the above concept, when entering a trading order in forex we will understand that:

- IF BUY: You will buy the Ask price, and after entering the order, the price displayed in the order column (to calculate the profit/loss of the running order) will be the Bid price (which can be understood if you close the order, then the order will be closed). you are selling in reverse and must sell at Bid price)

- IF SELL: You will sell the Bid price, and after entering the order, the price displayed in the order column (to calculate the profit/loss of the running order) will be the Ask price (can be understood if you close the order, then the order will be closed). you are buying the opposite and must buy at the Ask price)

For example, the EUR/USD currency pair has a quoted price:

1.20300 / 1.20320

So Bid price is 1.20300, Ask price is 1.20320 and spread is 2 pips (20 points)

Now you enter 0.1 lot BUY order, then immediately the order execution price is Ask price 1.20320, and immediately in your account there will be buy 0.1 lot status and losing 2 pips x 0.1 lot x 10 = -2 usd , the price displayed to calculate profit/loss (also the price if you close the order now) is Bid price 1.20300.

And if you enter 0.1 lot of SELL order, immediately the order execution price is Bid price 1.20300, and immediately in your account there will be a sell status of 0.1 lot and a loss of 2 pips x 0.1 lot x 10 = -2 usd , the price displayed to calculate profit/loss (also the price if you close the order right away) is the Ask price 1.20320.

3. HOW TO AVOID THE BROKER SCANING ORDERS OVER NIGHT

When you let the order be traded through the day, at the time of transferring the trading session from the old day to the new day, there will be a spread increase (quite strong). The explanation from Forex Brokers is that liquidity has declined sharply, and this is also clearly stated by brokers in the "terms" section when you open a trading account, you have already clicked to accept those terms, so If your order is scanned (stop loss, or margin call...), your complaint will not be resolved.

Because this is the reality in most brokers, although it is reasonable, it is also a reason for brokers to "cheat" for the purpose of scanning our orders, depending on the broker. spread is more or less, the more reputable the broker, the less the spread will be, and the more "unreputable" broker, the more powerful it is to take advantage of the widening to scan more orders. Therefore, our only way is to adapt to that, and find ways to avoid it.

There is one point to note, with trading sessions closed before the holidays and before the weekend, the spread will often be stretched much more.

Also, we need to understand that buy and sell orders can both be scanned by forex brokers. For example, you sell a currency pair at 50 and put a stop loss at 55, near the end of the day the price has dropped to 40 but at the close the broker can still push the price down to 35 and widen the spread - ask price to 56 (bid price is 35) then you still get stop loss. In this case, someone else buys at 45, and sets Stop loss at 36, and still has a stop loss.

To know if the forex broker where you are trading has more or less rollover, simply compare the closing price with other brokers and you will know the results.

And here are a few notes, to avoid being scanned overnight due to spread increase:

- Trade only during the day, do not leave orders overnight: This way you have to be a short trader, win/lose short around the maximum level of 20-40 pips, or you can also enter orders and follow up to close to closing time (about 30 minutes to 1 hour) then close the order.

- Trading with small volume: Reducing the trading volume of 1 order will limit the increase in spread for call margin. Pay special attention to the weekend trading sessions, some brokers have regulations to reduce margin, you need to know the margin reduction to balance the appropriate trading volume.

- Set Stop Loss further: If you decide to hold your order overnight, especially through the week or over the holidays, you need to set the Stop loss further away to avoid an unfortunate stop loss.

- Enter a reciprocal order: Placing a counter-order against the running order, and floating the stop loss and take profit for both orders running at the same time is a good solution, when the next trading session is stable, it will find a suitable point to close each order in turn.

Best regards, 

CaPhiLe.Com

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