|08-14-2014, 02:17 PM||#1|
Understanding Chart Pricing Options
Forex charts can have several different display options for pricing. Prices can be displayed with the asking price, the bidding price, or the average price. The choice you make might depend on your bias, or which direction you intend to trade.
The asking price is the price at which a currency pair can be sold. If you are looking to make a short trade, the asking price is the price that your order will be filled at.
The bid price is the price at which a currency pair can be bought to go long. If you are going long, your order will be filled at the bid price.
The average price is between the bid and ask price. The average price is not a price that you can trade, but it is a good way to display the price on the chart because it is not biased towards buying or selling. It gives you a balanced view of the price action.
The difference between the bid and ask price is called the spread. The spread is how forex brokers make money while avoiding charging a commission. Theoretically, one trader can put in a sell order on a currency pair and the forex brokerage can match that order up with an order placed at the same time by another trader to buy the same pair. The seller pays the asking price, and the bidder pays the bid price and the broker keeps the difference in the middle.
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