Bid and Ask, do I pay 2x spreads for each trade? | Forex Factory

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Bid and Ask, do I pay 2x spreads for each trade?

  • #1
  • First Post: Feb 1, 2014 5:08pm Feb 1, 2014 5:08pm
Cant believe after so many years trading I still don't get this straight. Can someone please help to clarify the Bid and Ask price in the following scenario

 

  1. At 1 o'clock, the Bid for EU is 1.2000 and the Ask is: 1.2500. A long position is made at 1.2500. The spread sent to the broker is 500pips.
  2. At 10 o'clock, the Bid price for EU is 1.3000 the Ask is: 1.3500. If the long position is now closed, is it the Ask or the Bid used to calculate the profits?


If Bid is used, then profits is ony 1.3000 - 1.2500 = 500pips; compared to 1000 pips if Ask price is used.
Hence the total spread sent to broker for this trade is 500pips at open + 500pips at close = 1000pips??? Mean I had to pay 2 times the spread for one order?

Thanks alot.

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  • #2
  • Feb 1, 2014 6:04pm Feb 1, 2014 6:04pm
What a buyer is willing to pay - bid always less (10)
What a seller is asking - ask always more (11) in this case spread is 1,

We as traders enter the market on the opposite side so to buy we are finding a seller ASK price, and to sell we find buyer BID price

It doesn´t really matter what the spread is if you follow the correct prices

So at 1 long position is open BUY - ASK - 1.2500
at 10 long is closed SELL - BID - 1.3000

So basically yes you pay two times spread, also depends how the system is showing the prices, if only bid is shown, when opening position you pay spread and when closing no, i am not really sure how your broker shows this information but if you follow the bid and ask prices as i said before you get the result.
Anyway some brokers show always both prices even when you put in SL and TP, for example SL at 1,100 BID, so this missunderstanding is prevented, also it complicates the decision making, but it can be learned through practice .

Its very easy to get this mixed up, i hope i got it right

David
  • #3
  • Edited 6:47pm Feb 1, 2014 6:31pm | Edited 6:47pm
Quoting kbp
If the long position is now closed, is it the Ask or the Bid used to calculate the profits?
Ive been trading along time also and it is still confusing but here goes

The closing bid price is used used to calculate your profits on a long position. However you do not pay the spread twice
You bought the ask price and then you sold the bid price and paid the difference, the spread, only once.

If you had bought and sold before price moved, you would lose only 1 x the spread, and that is all your broker could collect

you would buy the ask at 1.25 and sell the bid at 1.20. You would realise a net loss of 500 pips, only 1 x spread

However, I wouldnt recommend entering with 500 pips of spread - just sayin
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  • #4
  • Edited 10:47pm Feb 1, 2014 10:34pm | Edited 10:47pm
Quoting david026
So basically yes you pay two times spread...
This answers the question.

Quoting M.A.C.Doug
If you had bought and sold before price moved, you would lose only 1 x the spread, and that is all your broker could collect you would buy the ask at 1.25 and sell the bid at 1.20. You would realise a net loss of 500 pips, only 1 x spread
Good example there.

Buy the Ask 1.25 instead of the Bid 1.20 means the broker already "offsets" 500 pips. (i.e. we, traders, "inactively" disadvantages 500pips spread but it's not showing in account balance)
After 10 hours, if price is still the same and we close the position at Bid 1.20. A 500 pips loss occurs but this time it shows in account balance.

Hence in total it's 2x the spread against the traders. One is hidden and one is directly showing on account balance when trade is closed. Traders only need to pay for the 2nd one. The 1st one is counted as "disadvantage" against the market, instead of a real spread pay.

We better become broker than trader.
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  • #5
  • Feb 3, 2014 9:10am Feb 3, 2014 9:10am
One time you pay the spread when you making the order. Second time you paying the spread when you closing the order. Understand, no.
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  • #6
  • Feb 3, 2014 4:25pm Feb 3, 2014 4:25pm
Most charts use the Bid Price ( also called offer price), to show current price of the instrument. This is the price you will get when you Sell the instrument, either to open a Sell trade or to close a Long position.
The Ask Price, not always shown on charts, is the higher price you will be charged when opening a Long trade or closing a Short position.
The difference between the 2 prices shown at the time is the spread. The higher the spread, the more illiquid the instrument.

eg. If you opened a trade then closed it immediately and the Bid price had not moved, you will have paid the Ask price when you bought it ( higher price) and then offered the Bid price (lower value) when you closed. You have paid the spread only the once, not twice. Vice versa , if you opened Short.

You could of course, wait for the Bid price to rise, then going long you get the difference between the Ask Price you paid minus the new Bid Price on offer.
This is why you often add the spread to your pending Buy orders, yet get the "market price" or chart price when Selling.
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  • #7
  • Feb 3, 2014 11:33pm Feb 3, 2014 11:33pm
Quoting NOpantsON
One time you pay the spread when you making the order. Second time you paying the spread when you closing the order. Understand, no.
Nope, you're wrong.

If the quotes on EUR/USD are 1.3512/1.3514 and I want to go long, i get the ask price of 1.3514. If I want to get out, I have to close my trade at the bid price of 1.3512.

You only pay the spread ONCE.
  • #8
  • Feb 4, 2014 5:15am Feb 4, 2014 5:15am
Just once and that's it..but I suppose spam brokers could head down this route to pad up their take, you never know..
  • #9
  • Feb 4, 2014 5:39am Feb 4, 2014 5:39am
Quoting kbp
{quote} This answers the question. {quote} Good example there. Buy the Ask 1.25 instead of the Bid 1.20 means the broker already "offsets" 500 pips. (i.e. we, traders, "inactively" disadvantages 500pips spread but it's not showing in account balance) After 10 hours, if price is still the same and we close the position at Bid 1.20. A 500 pips loss occurs but this time it shows in account balance. Hence in total it's 2x the spread against the traders. One is hidden and one is directly showing on account balance when trade is closed. Traders only need...
Hey I see what you're saying but there's something you're missing. The "real" market or market price can be found between the bid and ask quotes. It's only logical that if the broker providing you a service and liquidity buy the currency at say 1.100 then they will quote a price for customers to SELL below 1.100 and a price to buy ABOVE 1.100.

In effect you pay half the spread on your ENTRY and the other half of the spread on your EXIT. In total you paid the spread ONCE..
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  • #10
  • Feb 5, 2014 1:38am Feb 5, 2014 1:38am
Quoting lcy723
{quote} Nope, you're wrong. If the quotes on EUR/USD are 1.3512/1.3514 and I want to go long, i get the ask price of 1.3514. If I want to get out, I have to close my trade at the bid price of 1.3512. You only pay the spread ONCE.
Exactly. Good you paying attention. Not worry I best trader on here, I seeing if anyone is paying the attention. Looking like only blind leading the blind, you know. Not worry I show shortly I making the good trades.
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  • #11
  • Feb 5, 2014 2:58am Feb 5, 2014 2:58am
You don't pay the spread once or twice... but half each time.

So if we're bid 15 and offered 17, and you want to buy the offer, you buy 17s. If you want to sell out right away and the market hasn't moved, you sell at 15s. Your spread has been two pips. If you think about the difference between the bid and the theoretical middle of the bid/offer (which in this case would be 16), then it's one pip to 15 and one pip to 17. So you pay one pip when buying and one when selling.

Carrying on this line of thought, say the market is 15/17 and you buy 17. Then news hits and the market is now 25 bid 30 offered. You want to sell out so you hit the bid at 25. How much spread did you pay for this trade? You paid 1 pip on entry, and 2.5 on exit (midpoint of 25/30 is 27.5, so 2.5 pips to each side), for a total of 3.5 pips.

So I don't think it's accurate to say you pay it just on entry or exit, as you need to factor both entry and exit spreads into account to see what you're really paying over the whole trade. You lock in half the spread on entry and half on exit, so you don't really know how much spread you're paying until both sides are completed. At least that's how I look at it.
  • #12
  • Last Post: Feb 7, 2014 4:19am Feb 7, 2014 4:19am
To make it easier to understand:
you will always buy (open long trade) at higher price(ask) and sell ( close long trade) at a lower price(bid) .
you only pay the spread once. when opening the order.
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