What are Bid and Ask and its advantages for a trader?
Bid and Ask refer to the basic concepts of trading, they help set limit orders to buy or sell. In addition, thanks to them, the player will be able to manage transactions more effectively, which is especially important when working with Take Profit and Stop Loss.
ASK represents the bid price offered by the seller and BID represents the price from the buyer. The difference between these values is called the spread.
The main drivers of price movements in the market are supply and demand. Each party wants to make a deal at a cost that is profitable for it. It is natural that in the process of bidding the buyer offers a higher price, and the seller – a lower one because such conditions are profitable for everyone. The difference in offers forms the spread. However, in some cases parties, it is not possible to reach an optimum price. As a result, there is a widening of the spread when the difference between the bid and ask prices is extremely large. If the offer causes the demand of many buyers, then the spread can be equal to zero.
The Ask provides income to sellers and the Bid to buyers. The Spread is the broker’s earnings.If conditions for an increase in the price of a commodity develop, the Ask goes up. This makes it less likely that the buyer will be able to buy the asset at the old price, and he has to increase the Bid. If the price of the goods decreases, the opposite happens – the Ask and the Bid decrease. The deal is done when the buyer is ready to pay the price offered by the seller.
The first thing to start the analysis of the deal is the Bid indicator, and after that – the Ask price. The Spread is calculated by computing the Bid from the Ask.
These concepts are important to know for traders who actively conduct transactions in the market. A frequent situation faced by players on the market is the opening of a sale on a particular instrument. As part of this, the trader opens Take Profit at a specific level, and when the price reaches this level, it collides with the mark and turns around. As a result, the trade remains open.
The second option is to use a Buy-Limit order. When the price touches a point on the chart, the trade cannot be opened and goes to another trader.
Such situations occur because players do not pay attention to the Ask price, and set only the Bid. At the same time terminals allow you to monitor the Ask, but not all use this functionality. It is important to pay attention to this fact for traders who carry out processes with high spreads. Ask and Bid help to better track profitable prices and quickly make a deal before it is intercepted by another trader.