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bid/ask spread

The bid-ask price is the difference in the price of one currency in terms of the other as shown by banks, brokers and dealers in the foreign exchange market. Banks do not normally charge a commission on their currency transactions, but they profit from the spread between the buying and selling rates on both spot and forward transactions.

Quotes are always given in pairs because a dealer usually does not know whether a prospective customer is in the market to buy or to sell a foreign currency. The first rate is the ‘bid’ (or buy) price; the second is the ‘ask’ (or offer) rate. As an example, if GBP-USD is quoted at 1.3018-1.3027, it means that the bank is willing to buy GBP at 1.3018 USD and sell them at 1.3027. A customer of the bank can be expected to sell GBP to the bank at 1.3018 USD and buy them at 1.3027 USD. The dealer will profit from the 0.0009 USD spread between the bid and ask rates.