Buy / Sell and the Spread
Why are you down the moment you open a trade? Watch Buy fill at the Ask and Sell fill at the Bid in real time, and see the spread widen at different times of day.
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
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Text version · Forex Basics, lesson 4: “Buy / Sell and the Spread”
Why are you down the moment you open a trade? Watch Buy fill at the Ask and Sell fill at the Bid in real time, and see the spread widen at different times of day.
Trading a pair = buying one currency and selling another at the same time
EUR/USD = 1.0850 means 1 euro is worth 1.0850 US dollars. Buy means you're bullish on the euro in front; Sell means you're bearish on it.
There are always two prices
The broker quotes a Bid (where you sell) and an Ask (where you buy) at the same time. The Ask is always above the Bid, and the difference is the spread: the "entry fee" on every trade. With a 1.2-pip spread and 1 lot, you start about $12 down the moment you open.
Spreads aren't fixed
When the London and New York sessions overlap, liquidity is good and spreads are tight. Late at night when it's quiet, or around big data releases, spreads can widen several times over.
Key takeaways
- Buy (go long) fills at the Ask and closes by selling at the Bid.
- Sell (go short) fills at the Bid and closes by buying back at the Ask.
- The spread is the first hurdle of every trade: spread cost = spread in pips × pip value. The price must cover the spread before you start making money.
- Spreads change: tight in busy sessions, noticeably wider in quiet markets or around major data releases.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Click BUY to open: the P&L instantly shows about −1.2 pips (about −$12). Why is it negative the moment you open?
- Close the position first, then click "Major data" to widen the spread to 5.0 pips: what does "Spread cost paid on entry" become?
- Click "Busy session" to set the spread to 0.8 pips, then open a Buy and click "Push up 5 pips": when does the P&L turn from negative to positive?
- Try opening a Sell, then click "Push down 5 pips": when you close, do you buy back at the Bid or the Ask?
Quiz and explanations
- 1. EUR/USD is quoted Bid 1.08500 / Ask 1.08512. You click Buy. What's your fill price?
- Answer: 1.08512.Buying always fills at the seller's asking price (the Ask).
- 2. Buying EUR/USD means you think…
- Answer: The euro will rise against the dollar.Buying the pair = buying the base currency EUR and selling the quote currency USD.
- 3. The spread is 1.5 pips and you trade 2 lots of EUR/USD ($10 per pip per lot). Roughly what's your spread cost the moment you open?
- Answer: $30.1.5 pips × 2 lots × $10 = $30. The bigger the position, the higher the spread cost.
Terms in this lesson
- Ask: The price sellers are asking for. When you buy, you trade at the Ask.
- Bid: The price buyers are willing to pay. When you sell, you trade at the Bid.
- trading session (Trading Session): The business hours of financial centers like Sydney, Tokyo, London and New York; trading is busiest and spreads tighter when sessions overlap.
- liquidity (Liquidity): How many orders are waiting near a price; the deeper the book, the harder it is to move the price.
- currency pair (Currency Pair): Such as EUR/USD: how much of the quote currency (USD) one unit of the base currency (EUR) is worth.
- pip (Pip): The smallest standard price unit in forex; for EUR/USD, 1 pip = 0.0001.
- spread (Spread): The gap between the Ask and the Bid, a hidden cost on every trade.