The Bid-Ask spread explained

The bid-ask spread, also known simply as "the spread", is the difference between the bid price and the ask price of a security like foreign currency.

The Mid Price

The foreign exchange (fx) mid-price is the price between the ask price and the bid price. It can simply be defined as the average of the current bid and ask prices being quoted.

The Ask Price

An fx ask price is the price at which the market is ready to sell a certain fx trading currency pair. This is the price that the trader buys in. It appears to the right of the fx quote. Importers look at the ask rate to exchange rand to foreign currency. The cost margin at which an importer will be trading currency is the quoted price minus the ask price.

The Bid Price

An fx trading bid price is the price at which the market is prepared to buy a specific currency pair. This is the price that the trader of fx buys his base currency in. The fx bid price appears to the left of the currency quote. Exporters look at the bid rate to exchange foreign currency to rand. The cost margin at which an exporter will be trading currency is the the bid price minus the quoted price.

The Bid-Ask Spread

The Bid-Ask Spread is the amount by which the ask price exceeds the bid. In essence the difference in price between the highest price that a buyer is willing to pay for fx (Bid) and the lowest price for which a seller is willing to sell it (Ask).