Bid Price, Ask Price & Spreads

A friend of mine recently complain to me, saying that the Broker he used to trade is a crook, many times that when he is trading, he set his Take Profit (TP) and Stop Loss (SL) point and leave it there, he told me that a lot of times when the market price hit his TP point, the broker did not close his order in profit, while when the price is near to his SL point (1-2pips i supposed), the broker took his order out with a LOSS. He is very frustrated and complaining to me about his problems.

After digging further about his situation, i found out that he doesn't understand about the BID/ASK price and did not take into considerations of the SPREADS (Even though he had been trading for a while). So i decided to write a little bit about this topic, to remind myself to take into consideration of  BID/ASK PRICE, and SPREADS when trading.

                                BID PRICE                                                           ASK PRICE

BID PRICE
So, what is a bid price? A Bid price is a price that the market is willing to purchase at for a particular asset. Examples : the image aboved is a quote of Bid/Ask price of USD/CHF. the bid price is 0.93971, which means that if you made a Long trade, you would be paying the BID Price which is 0.93971 for this pair.

Another Example:

Lets say you put a Buy Limit @ 0.93900, you will only get your order filled when the price goes Xpips (spreads) below your order level, which is 0.93877 in this case. When the price reached 0.93877 (Bid Price), your order get filled and the price you get is 0.93900 (Ask Price).

                                BID PRICE                                                           ASK PRICE

ASK / OFFER PRICE
An Ask price is a price that the market is willing to sell for a particular asset. using the image aboved, if you close your order or Sell, you will be closing out at the Ask price which is 0.93994 for this pair.

Another Example:

If you put a Sell Limit lets say @ 0.94060, your order will however filled when the price reached Xpips (spreads) below your order level, which is 0.94037 in this case. When the price reached 0.94037 (Bid Price), your order get filled and the price you get is 0.94060 (Ask Price).

SPREADS
The spreads is the difference between the Bid and Ask price, for examples, the spreads for the USD/CHF aboved is 0.93994 - 0.93971 = 0.00023. which is 2.3 pips or 23 pipettes.