This ask is the price at which the market is prepared to sell a specific currency pair in the Forex market. At this price, the trader can buy the base currency. The ask price is shown on the right side of the quotation. For example, in the quote USD/CHF 1.4527/32, the ask price is 1.4532, meaning that you can buy one
U.S. dollar for 1.4532 Swiss francs. The ask price is also called the
offer price.
BID/ASK SPREAD
The difference between the bid price and ask price is called the spread. The big-figure quote is a dealer expression referring to the first few digits of an exchange rate. These digits often are omitted in dealer quotes. For example, a USD/JPY rate might be 117.30/117.35 but would be quoted verbally without the first three digits as 30/35.
The critical characteristic of the bid/ask spread is that it is also the transaction cost for a round-turn trade. Round turn means both a buy (or sell) trade and an offsetting sell (or buy) trade of the same size in the same currency pair. In the case of the EUR/USD rate above, the transaction cost is 3 pips (Figure 1-2).
FORWARDS AND SWAPS
Outright forwards are structurally similar to spot transactions in that once the exchange rate for a forward deal has been agreed, the confirmation and settlement procedures are the same as in the cash market. Forwards are spot transactions that have been held over 48 hours but less than 180 days when they mature and are liquidated at the prevailing spot price.
Transaction Cost = Ask Price – Bid Price
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