The bid price is the highest price that buyers are willing to pay for an asset at a given point in time. The ask price is the lowest price that sellers are willing to accept for an asset at a given point in time.
Bid and ask prices in forex pairs are stated to the fourth decimal place (with the odd exception such as the USD/JPY). For other tradable assets, such as gold, stocks CFDs, or oil, are generally stated to the second decimal place.
Bid and ask prices are organically set by market participants and fluctuate depending on the decisions of the players. When demand begins to surpass supply, the bid and ask prices will typically begin to trend upwards. Conversely, when supply begins to surpass demand, the bid and ask prices will typically begin to trend downwards.
The spread is the difference between the buy (bid) and the sell (ask) price. The spread is sometimes referred to as the bid-offer spread, bid/ask or buy-sell spread.
The spread in forex is measured in “pips”, which is the smallest unit of the price movement of an asset or currency pair. One pip is equal to 0.0001. Therefore, a 2-pip spread between the EUR/USD would be 1.1050 / 1.052. In this example, 1.1050 would represent the bid price and 1.052 would represent the ask price.
Generally, spreads are good indicators of liquidity in the market. If the spread of an asset is quite small, it can be said that there is high liquidity as many traders are consistently trading the asset from both sides and finding an equilibrium (buying and selling). Conversely, a large spread might indicate low liquidity with very little buyer, sellers, or both engaged in trading the asset.