Now if you are completely new to trading, you might be asking yourself what is the spread? When you look at a price chart, there are two prices you need to be aware of. 

• The top one is called the ask price, that’s the red line on this chart. 

• And the bottom one is called the bid price, that’s the blue line on the chart. 

   

The spread is the difference between the buy price (ask) and the sell price (bid) of an asset. It’s basically the small gap between what the market is willing to buy something for and what it’s willing to sell it for.  You can think of the spread as a built-in cost of placing a trade. As soon as you open a trade, you’re down by the amount of the spread, because you bought at a higher price than you could immediately sell at. When you place a BUY trade, your BUY trade will be opened at the ASK PRICE, and will be closed at the bid prices. And when you place a sell trade, your sell trade will be opened at the bid price, and will be closed at the ask prices. This difference is very important to understand, because the spread will impact where your trades are opened and where your trades are closed. 

Let’s take a look at this chart as an example. Here we can see that price for the EURNOK currency pair was trading at 11.51. Even though the current price was at 11.51, we can see that the ASK price at that time was trading at 11.52, with a spread of about 11 pips. That means, if you wanted to open a BUY trade when price was at 11.51, due to the spread your BUY trade would have opened at 11.52, to account for the spread. This is not just important to consider when opening trades, but also important when closing trades. 

In this example, a trader placed a sell trade on the NOKJPY currency pair. The sell trade was opened at 14.274, with a Stop loss set at 14.311, and a take profit set at 14.200. Notice that even though the price moved past the targeted closing price, this trade was not closed. The reason for that is because a SELL trade closes at the ASK PRICE (the red line). So, this trade will only be closed at the targeted closing price of 14.200, when the price moves low enough so that the ASK price (the red line), reaches 14.200. In other words, only when the price moved lower and the ASK price reached 14.200, only then the trade was closed at the targeted price. This is very important to understand as the spread can make a huge difference between a losing trade and a winning trade.