July 25, 2017, 7:10:30 AM EST
by Newsmovesmarketsforex Staff Writer
In order to effectively participate in Forex Market trading activities, Forex traders should be completely aware of all the rules of engagement involved. Let’s have a detailed look at the way the ask price is originated and quoted when trading in the Forex Market.
An OTC (Over the Counter) system is operated by the Forex Market which is accessible at any time of day during the entire working week.
This 24/7 trading system is highly decentralized and consists of a complex network of brokers, electronic communication networks, private banks, lending institutions, hedge funds, commercial companies, central banks, and investment management firms.
How is the bid price and ask price related to Forex Trading?
The bid price is simply the largest amount of money that a Forex trader is willing to pay for a certain currency pair.
On the other hand, the ask price, also commonly known as the offer price, is the amount demanded by the Forex Market for selling the currency pair to the trader.
The gap between the values of the ask price and bid price is called the spread price. The Forex broker is the one who receives the spread price. It is calculated in the transaction fee that is charged by the broker.
In order to explain the concepts associated with the ask price and the bid prices, let us consider the following example which involves a currency pair consisting of Australian dollars and United States Dollars (i.e. an AUD/USD currency pair).
The important thing to remember here is that the Australian dollar is known as the base pair and the United States Dollar is called the cross pair or, sometimes, the counter pair.
If the AUD/USD currency pair has a Forex spot market price at a rate of 0.76541/591, this would indicate that the bid price would be at a spot rate of 0.7654 and the ask price would be at a spot rate of 0.7659.
A trader would be able to purchase a single Australian dollar at a spot rate of 0.7659 USD.
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