Bid/Ask Spread
What is a bid ask spread?
The bid-ask spread is the difference between the price that the market maker is willing to buy for a currency (the bid) and the price at which the market maker is willing to sell a currency (the ask).
It is a key indicator of the liquidity of the currency pair.
How to calculate bid ask spread
The bid-ask spread can be calculated as the difference between the asking price (the lowest price a seller is willing to accept) and the bid price (the highest price a buyer is willing to pay).
Bid Ask spread = Ask price – Bid price
Bid Ask spread example
A business needs to purchase 1,000,000 EUR and sell GBP, they are given the below exchange rates:
- Sell EUR / Buy GBP rate: 0.8576
- Buy EUR / Sell GBP: 0.8575
Bid-Ask spread: 0.8575 - 0.8576 = 0.0001 (1 pip)
Related terms:
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