Today we will discuss the significance of the bid price, the ask price, the spread and swap.
When you start using a trading platform, you will notice that exchange rates are quoted in two prices. The first price in a currency pair is the bid price. It is the price at which the broker is willing to buy from you. Put simply, it is the price at which you can sell.
The second price is the ask or offer price. It is the price at which your broker is willing to sell the currency pair to you. This is the price at which you can buy.
The difference between the bid and the ask prices is called the spread. It represents the cost you incur when entering a trade. Professional traders pay particular attention to how wide the spread is, especially for their favourite trading instruments. This is because the spread directly impacts their trading costs.
A forex swap or a rollover is the interest amount added or deducted when you keep a position open overnight. From Wednesday to Thursday, a triple swap is applied. Swap rates are calculated based on the overnight interest rate differential between the two currencies in the pair. Swap rates can generate extra profit or loss for your trade.
