Bid, ask and spread

The lesson in full

1. Change money at an airport and you'll see it. A money changer in Jakarta might buy your dollars at Rp16,200 each but sell dollars at Rp16,400. That gap is how it gets paid.

2. Markets work the same way. The bid is the price you get when you sell. The ask is the price you pay when you buy. The ask is always a little higher.

3. The gap between them is the spread. EUR/USD bid 1.1248, ask 1.1250: a 2-pip spread. You start every trade slightly in the red.

4. Small costs add up. On one standard lot of EUR/USD (100,000 euros), 1 pip is worth US$10, so a 2-pip spread costs US$20. Trade 20 times a day: US$400.

5. Spreads are tightest in busy hours, like the London and New York overlap. They widen at the 5 p.m. New York rollover, around big news and when few traders are active.

6. Common mistake

   Myth: "zero commission" means free trading. The cost is often built into the spread instead. Compare the total cost of getting in and out, not the headline.

7. Key takeaway

   You buy at the ask, sell at the bid and pay the spread every time. Fewer, better trades keep more of your money.