Confused about bid/ask

Hi all, I am having some slight trouble understanding the bid/ask price. I can understand it in an uptrend. When I buy, I can only sell at what people will buy it from me for. So if I buy at 4 and then immediately sell at say 3, I lose 1. I can understand that. I am having trouble understanding how this works in a downtrend. Can someone help me with this?

thanks.

just the opposite. you sell at 3 and buy back at 4. loose 1.

Bid is the best price that you can sell the currency pair for and Ask is the best price that you can buy the currency pair.

For example if EURUSD is priced 1.2732/35 it means that you can buy a standard lot of EURUSD (i.e. 100,000 Euros) for 127350 USD (100,000 * 1.2735 or ask price). You may also sell the same lot for 127320 USD (100,000 * 1.2732 or bid price).

Now suppose that your currncy of denomination (or the currency that you use for your account) is USD. There can be two scenarios.

Scenario 1: You go long and close the trade immediately

In this case you by 100,000 euros for 127350 USD and then you sell the same amount for 127320 USD. This means that you lose 30 USD because of the spread.

Scenario 2: You go short and close the trade immediately

In this case you sell 100,000 euros for 127320 USD. This means that you owe your broker 100,000 euros (because you actually didn't own that money as your account currency is USD). As a result of this trade you gain 127320 USD. Now if you close this trade immediately, it means that you you need to pay 127350 USD to buy back the euros you sold to be able to return the euros to your broker. This means that at the end of this trade you lose 30 USD (you gaind 127320 USD and paid 127350 USD).

I tried to simplify the machanism by these two examples. What really happens depends on your brokers strategy. They usually incorporate the spread into your account instantly.

Why am I not selling at the Ask price? Wouldn't the ask price be the best price that I am offering someone else?

Ask and bid are both the prices that are offered by the Market Maker (i.e. the broker) not you.

The bid will always be the lowest price on the two quotes. Because people buy low to sell high. The ask will always be the highest price of the two quotes. Because people sell at a high prices and buy at low prices. Does this help?

Whether you are selling to exit a long or entering a short trade, a market order will get you only the best bid. Sometimes you get lucky and a market buy order may come in and fill between bid and offer. Don't ever count on it though.

Sounds to me like you are thinking of a stock market scenario. The spread in forex is just like paying a commission to a broker. It doesn't mater the direction of the market. With forex you do not run out of buyers and sellers.

ok....I think I understand. The prices that are set out are by the broker and stays that way whether I am buying or selling. Once I buy, I do not get to sell it back at the same price that the broker is selling it for. Is this correct?

Correct. Think of it this way:

You never get the price you'd like; you always get the opposite price.

If you're buying something, you'd want to buy at the lowest price (bid), but you're forced to buy at the higher price (ask).

If you're selling something, you'd want to sell at the higher price (ask), but you're forced to sell at the lower price (bid).

In both cases, if you immediately turn around and reverse the transaction, it will always be at a loss. If fact, you don't even have to reverse the transaction. As soon as you buy or sell, the broker snatches his spread out of your account, so you're in the hole from the moment you clicked your mouse.

I ask to buy, but I bid to sell

ok great...thanks guys, I think I have it now. Its not like a system such as a bank where as I can buy at say $4 and sell back to an individual at $4 to break even. cool, thanks.