Bid/Offer

There are two specific prices that are used to quote currency pairs. The price which someone is willing to sell a currency pair is referred to as the offer price, while the price where traders want to buy a currency is referred to as the bid price. The difference between these two prices is called the bid/offer spread, and the average of the two prices is called the mid-price.

Generally when an investor wants to purchase a currency pair in the over the counter market they will purchase at the offer and sell on the bid. A tight bid/off spread usually equates to a more liquid currency pair.

The bid offer spread for a currency pair is usually separated by 1 or more pips. A pip is referred to as the incremental price change for a given exchange rate. Since most major currency pairs are priced to four decimal places, the incremental change is that of the last decimal point. For example, when viewing the EUR/USD exchange rate of 1.3751 / 1.3753 the difference between the bid and offer price is 2 pips.