Traders in the foreign exchange market buy and sell currency to try to make profit. There are two prices for currency, the buy price, called the ‘BID’ and the sell price is called the ‘ASK’.
The difference between the ‘bid’ and the ‘ask’ is called the ‘spread’. The spread represents the difference between what the market maker gives to buy from a trader and what the market maker takes to sell to a trader.
For example: the EUR/USD bid/ask rate is 1.2100/1.2200. The market maker gives $1.21 when buying from the trader but takes $1.22 when selling to the trader. If traders buy and sell immediately without any change in the exchange rate they lose money. This happens because of the spread traders pay more to buy the currency than they receive when they sell in that one moment.
In fact, the spread is the leading source of income for the market maker. Like any other market the merchant will buy at one price and sell at a higher price.
The difference between the ‘bid’ and the ‘ask’ is called the ‘spread’. The spread represents the difference between what the market maker gives to buy from a trader and what the market maker takes to sell to a trader.
For example: the EUR/USD bid/ask rate is 1.2100/1.2200. The market maker gives $1.21 when buying from the trader but takes $1.22 when selling to the trader. If traders buy and sell immediately without any change in the exchange rate they lose money. This happens because of the spread traders pay more to buy the currency than they receive when they sell in that one moment.
In fact, the spread is the leading source of income for the market maker. Like any other market the merchant will buy at one price and sell at a higher price.