Just like each other financial product Fx currency pairs have got a double price, the bid and the ask one.
Let's see what a FX bid price is and why (and when) it is important to know it.
The bid price (also called 'sell price' or 'quote') indicates what other traders or institutions are willing
to pay for an FX currency pair.
This quote, that is always lower than the ask one, is often the only price shown in the most common kinds of
charting software or newspapers' charts (even if a few of them display both quotes or show an average price
between the bid and the ask one) and appears on the left side of a currency pair.
Let's see it in an example: a quote of 1.2330/35 for the pair EUR/USD means that you can sell 1 Euro for
1.2330 US Dollars.
Selling a currency is advisable if you believe that it is going to weaken: after a while you might buy it
back at a lower quote.
In our example: if the cross pair EUR/USD 1.2330/35 weakens to 1.2320/25 you can buy euros for 1.2325 US
Dollars with a profit of 5 pips.
If the market purchases, in accordance with the "law of supply and demand", the quotes will mostly strengthen,
otherwise they will weaken: it is a simple but important rule to consider.
In order to make the right choice someone trusts blindly his own instinct while the majority of traders prefer
to check out the graphs displaying currency market tendencies: Foreign Exchange is not an exact science and
luck plays a considerable role.
An other important factor to evaluate, when choosing whether to buy or sell, is the difference between the
bid price and the ask one, the "bid/ask spread".
This value is generally determined by the liquidity of a stock (which indicates the amounts of units being
sold and bought) and in FX trading Market it is (almost) never high: it is the biggest market all over the
world and it can count on a very large liquidity.
"Paying the spread" is absolutely unavoidable, whether you sell or buy: if you "go long" (buy) you pay it
initially, if you go short (sell) you will pay it closing your position.
For this reason most FX traders do not like and intentionally avoid wide spread currency pairs: they don't
want to waste their money and prefer to minimize the risk of possible losses.