For every Forex trader—especially beginners—understanding Bid price, Ask price, and Spread is essential. Knowing these basics helps you avoid situations where your broker might stop out your trades overnight, often called “overnight stop hunting.”
1. Bid, Ask, and Spread Explained
Whenever you look at a currency pair in Forex, a bank’s FX rates, or even gold prices in local shops, you’ll notice two prices: the Bid and the Ask.
- Bid Price: The price at which someone is willing to buy. For traders, this is the price you sell at.
- Ask Price: The price at which someone is willing to sell. For traders, this is the price you buy at.
Example (EUR/USD):
- Buying a 0.1 lot → buy at Ask 1.20042
- Selling a 0.1 lot → sell at Bid 1.20022
Spread: The difference between Ask and Bid, measured in pips or points.
Tip: On MT4, you can display the Ask line on the chart (press F8 → Common → tick “Show Ask line”) to monitor spread while trading.
2. How Bid and Ask Affect Your Trades
Buy (BUY) Orders:
- Enter at Ask price
- Account P/L is calculated using Bid price
Sell (SELL) Orders:
- Enter at Bid price
- Account P/L is calculated using Ask price
Example (EUR/USD):
- BUY 0.1 lot → Enter at 1.20320, immediately -2 pips (≈ -$2) due to spread
- SELL 0.1 lot → Enter at 1.20300, immediately -2 pips (≈ -$2) due to spread
For more on why 20 points = 2 pips, see Basic Forex Concepts.
3. Avoiding Overnight Stop-Outs (Stop Hunting)
Overnight stop-outs happen during the market session rollover (transition from one trading day to the next). Liquidity drops, and spreads often widen. Brokers may use this as an opportunity to trigger stops, which is typically disclosed in the account terms but cannot be disputed.
Key points:
- Holiday and weekend closures: Spread widening is usually more extreme during these periods.
- Both BUY and SELL orders are at risk: Example: Sell at 50 with SL at 55. Price drops to 40 but broker widens spread → triggers SL at 56.
Check your broker: Compare closing prices with other brokers to see if stop-hunting is aggressive or mild.
4. Tips to Minimize Overnight Stop-Out Risk
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Day Trading Only: Avoid holding trades overnight. Focus on short-term trades (~30–50 pips) or close positions 30–60 minutes before market close.
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Trade Smaller Lot Sizes: Reduces risk of margin calls caused by spread widening. Check broker margin adjustments during weekends.
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Set Wider Stop Losses: If holding trades overnight, place SL further away to avoid unexpected stop-outs.
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Use Opposite Hedging Orders: Enter an opposite trade with floating SL/TP. This helps protect your position without closing the original trade entirely.
Conclusion
Understanding Bid, Ask, and Spread is fundamental for all Forex traders. By applying proper risk management and knowing how your broker behaves overnight, you can protect your trades from unexpected stop-outs.
If you find this guide helpful, share it with a fellow trader.
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