What is Bid?
The bid is the amount that your broker is willing to pay to buy a financial instrument.
It is the opposite of an ask, which is the price that a seller will take to part with a financial instrument.
In forex, this is the price that you, the trader, may sell the base currency.
Bids usually comprise two elements:
- The price which the buyer is willing to pay
- The quantity of the financial instrument they are looking to purchase.
A trade is executed when a matching bid and ask are combined.
For example, a trader bidding 110.25 for 1,000 units of USD/JPY will see their trade executed when a seller agrees to that price and level.
The bid (the price at which you can sell an asset) is quoted as lower than they ask, and the difference between the two is known as the spread.
Understanding How Currencies are Quoted
When dealing with currency exchange rates, it's important to understand how currencies are quoted.
Suppose there is a Canadian resident who is traveling to Europe and needs euros. The exchange rates in the forex market are approximately USD 1 = CAD 1.0750, and EUR 1 = USD 1.3400. That means the approximate EUR/CAD spot rate would be EUR 1 = CAD 1.4405 (1.3400 x 1.0750). A currency dealer in Canada might quote a rate of EUR 1 = CAD 1.4000 / 1.4800, which means that you would pay 1.48 Canadian dollars to buy one euro and receive 1.40 Canadian dollars if you sold one euro.
The calculation would be different if both currencies were quoted indirect form. If the approximate spot rate for the Japanese yen is USD 1 = JPY 102, this is how you would calculate the price of a yen in Canadian dollars:
- USD 1 = CAD 1.0750 and USD 1 = JPY 102
- CAD 1.0750 = JPY 102, or CAD 1 = JPY 94.88 (102 / 1.0750)
In general, dealers in most countries will display indirect exchange rates or domestic currency required to buy one unit of a foreign currency.