Forex Foundations • Lesson 5
Bid/Ask Spread & Order Types 🧾
When you open a trading platform, you usually see two prices: the bid and the ask. These prices affect where your trade opens and how much it costs to enter the market.
The price where you can sell.
The price where you can buy.
The gap between bid and ask.
Why Bid and Ask Matter
Before you enter a trade, you need to understand which price your platform uses.
Buying and selling do not happen at the exact same price.
There is usually a small difference between the buying price and the selling price.
Simple idea:
The bid is where sellers enter. The ask is where buyers enter. The spread is the cost gap between those two prices.
Understanding this helps you avoid confusion when a trade opens slightly differently from the chart price you were watching.
What Is the Bid Price?
The bid price is the price where you can sell.
If you want to open a sell trade, your trade usually opens at the bid price.
Think of bid as:
Bid Price
The selling price
Sellers usually enter at the bid price.
What Is the Ask Price?
The ask price is the price where you can buy.
If you want to open a buy trade, your trade usually opens at the ask price.
Think of ask as:
Ask Price
The buying price
Buyers usually enter at the ask price.
What Is the Spread?
The spread is the difference between the bid price and the ask price.
Spread Example
Sell price
Trading cost gap
Buy price
Before your trade can go into profit, price first needs to cover the spread.
That is why spread matters.
Why Spread Matters
A small spread makes it cheaper to enter and exit trades.
A large spread makes trading more expensive.
Spreads can become wider during:
Beginners should always check the spread before entering a trade.
Beginner warning:
A trade can look good on the chart, but if the spread is too wide, your entry may be more expensive than expected.
Candlestick Example: Spread Before Profit
Candlestick Example
Price must cover the spread first
Entry cost
When you enter a trade, the spread is part of the cost. Price needs to move far enough in your favour before the trade starts showing real profit.
What Is a Market Order?
A market order opens a trade immediately at the best available price.
You use a market order when you want to enter now.
Market Order Idea
Buy now
Opens a buy trade immediately at the best available ask price.
Sell now
Opens a sell trade immediately at the best available bid price.
Market orders are simple, but they can be risky in fast-moving markets because price may change quickly.
What Is a Limit Order?
A limit order is used when you want to enter at a better price than the current market price.
Example:
Price is currently at 1.0800.
You only want to buy if price drops to 1.0750.
You can place a buy limit at 1.0750.
The trade will only trigger if price reaches that level.
Candlestick Example: Buy Limit Order
Candlestick Example
Waiting for price to pull back
Buy limit
A buy limit waits below the current price. It only triggers if price drops to your chosen level.
What Is a Stop Order?
A stop order is used when you want to enter after price breaks through a certain level.
Example:
Price is currently at 1.0800.
You only want to buy if price rises to 1.0850.
You can place a buy stop at 1.0850.
The trade will trigger only if price reaches that breakout level.
Candlestick Example: Buy Stop Order
Candlestick Example
Waiting for a breakout
Buy stop
A buy stop waits above the current price. It only triggers if price reaches the breakout level.
Stop Loss
A stop loss is an order that closes your trade if price moves against you.
It is used to limit risk.
Example:
You buy EUR/USD at 1.0800.
You place your stop loss at 1.0770.
If price drops to 1.0770, the trade closes.
This helps stop one bad trade from damaging your account too badly.
Take Profit
A take profit is an order that closes your trade when price reaches your target.
Example:
You buy EUR/USD at 1.0800.
You place your take profit at 1.0860.
If price reaches 1.0860, the trade closes in profit.
Candlestick Example: Entry, Stop Loss, and Take Profit
Candlestick Example
Planning the trade before entering
Trade plan
A planned trade has an entry, a stop loss, and a take profit before the trade is opened. Without those levels, the trader is guessing.
Beginner Tip
Never enter a trade without knowing:
Trade Plan Checklist ✅
If you do not know these things, you are not trading with a plan.
You are guessing.
Mini Practice
Try This on Demo 🧪
Open a demo platform and practise identifying bid, ask, spread, and order types. Do not use real money while learning how orders work.
Find the bid and ask price on your demo platform.
Check how wide the spread is.
Practise placing a pending order on demo only.
Add a stop loss and take profit before confirming the trade.
Quick Self-Check
Before moving on, test yourself:
What is the bid price?
The bid price is the price where you can sell.
What is the ask price?
The ask price is the price where you can buy.
What is the spread?
The spread is the difference between the bid price and the ask price.
What does a stop loss do?
A stop loss closes your trade if price moves against you, helping limit risk.
Quick Recap
What You Learned ✅
- Bid is the selling price.
- Ask is the buying price.
- Spread is the difference between bid and ask.
- Market orders enter immediately.
- Limit orders wait for a better price.
- Stop orders wait for a breakout level.
- Stop loss helps limit risk.
- Take profit closes the trade at a target.
⚠️ Educational only — not financial advice.
Always practise order types on demo before using real money. Never enter a trade without knowing your entry, stop loss, take profit, risk, and reason.