In this article, I’d like to explain the ask price, or ask, which plays an important role in trading. The opposite of the ask is the bid price.
The ask is the lowest price at which someone is willing to sell a security in the market. By contrast, the bid is the highest price at which someone is willing to buy. The difference between the bid and the ask is called the spread.
The ask in practice
Understanding and using the ask in trading
If we access market information, it might look something like the table in the above image.
I took the above screenshot on Tuesday, July 29, 2014, at 16:39. It shows the current spread for the GBP/USD, GBP/JPY and CHF/JPY currency pairs. The data comes from my broker’s platform (Interactive Brokers).
For the GBP/USD currency pair, we see the current bid at 1.69390 and the current ask at 1.69395. The difference, or spread, between the two is 0.5 pips. Volume is also displayed: bid volume is 5.4 million and ask volume is 2.2 million. It is crucial to get bid and ask volume from your broker.
For the GBP/USD currency pair, this means that there are sell orders worth 2.2 million at 1.69395, and buy orders totaling 5.4 million at a bid of 1.69390.
The orders shown at the bid and ask price in the market are always limit orders.
Now, if we were to use a market order to sell, say, 100,000 British pounds against the US dollar, we would get a price of 1.69390. If we wanted to use a market order to buy, say, 100,000 British pounds against US dollars, we would get a price of 1.69395.
The ask when entering a position
I regularly use the ask to enter a short position in trading – for example, when I want to sell above the current price using a sell limit order.
For example, let’s assume GBP/USD is trading at 1.6920, but I want to enter at 1.6950 and not pay more for my short position.
So I place a sell limit order at 1.6950. If the price rises and the ask is displayed at 1.6950, my sell order will be executed as soon as someone decides to buy with a market order. My sell order will also be executed if the bid increases to 1.6950.
The ask when closing a position
On the other hand, I also use the ask when I want to close a long position with a sell limit order.
Let’s assume that I bought the GBP/USD currency pair at 1.6910, expecting it to rise to 1.7000. I place a sell limit order at 1.7000, and if GBP/USD climbs to 1.7000, my ask will be filled as soon as someone buys at the market. My sell limit order will also be executed if the bid is raised to 1.7000.
If you have any questions about the ask and bid in trading, please post them in the comments below.
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