Bid, ask, and which price triggers your orders

By Otto Research 4 min read Article 9 of 95

A currency pair or CFD always has two prices. The bid is the price at which the broker will buy from you, so it is the price you sell at. The ask is the price at which the broker will sell to you, so it is the price you buy at. The ask is always the higher of the two.

This has a consequence that catches out almost every new trader. A long position is opened at the ask and valued at the bid, because closing it means selling. A short position is opened at the bid and valued at the ask. Every trade therefore opens with a small loss equal to the spread, and the market has to move that far in your favour before the position reaches breakeven.

Which price the chart shows

By default, MetaTrader 5 draws its charts from the bid price. That is fine for a rough view but it means that, for a long position, the chart shows the price at which you would close, while for a short position it does not. The ask can be shown as a separate line by ticking "Show ask line" in the chart properties, and it is worth doing on any chart used to check trades.

Which price triggers each order

Orders that close or open a long position are triggered by the bid. A long position's stop loss and take profit fire when the bid reaches them. Sell stop and sell limit orders also fire on the bid.

Orders that close or open a short position are triggered by the ask. A short position's stop loss and take profit fire when the ask reaches them. Buy stop and buy limit orders fire on the ask.

So a long trade's stop can be hit when the bid falls to it even though the ask never got there, and a short trade's take profit may not fill when the bid chart appears to touch the level, because the ask is still a spread above it.

Why spread widening matters here

When the spread widens, it is usually the bid that falls and the ask that rises around a roughly unchanged mid price. A long position with a stop 15 pips below the current price can be stopped out by a spread that briefly widens to 20 pips, even if the underlying market barely moved. This is what happens at the daily rollover, in the seconds around major news, and at the Sunday open, and it is why traders describe stops being "hunted". Usually nobody hunted anything. The spread widened and the bid touched the stop.

Worked example

You buy GBP/USD at an ask of 1.27020 with a stop at 1.26870, 15 pips below, at a time when the spread is 1.2 pips. Fifteen minutes before a Bank of England decision the spread widens to 12 pips. The mid price is unchanged at about 1.27010, but the bid is now 1.26950 and the ask 1.27070. A further fall in the mid of only 8 pips would put the bid at 1.26870 and close your trade, although the mid price never fell more than 8 pips. On a normal spread the same trade would have needed a 14-pip fall.

What this means when an EA is trading

A properly written EA uses the correct side of the quote for every order and every check, and does not treat a candle wick on a bid chart as evidence of what a short position experienced. When reviewing an EA's trade history against the chart, remember that the chart is the bid, and that a long's exit and a short's entry are the only events it shows exactly.

The wider point is that an EA trading with tight stops is exposed to spread widening in a way that an EA with wider stops is not. A stop of 10 pips is at the mercy of a rollover spike. A stop of 100 pips is not. This is one reason strategies built on higher timeframes, with stops measured in tens or hundreds of pips, are far less sensitive to the broker's spread behaviour than intraday strategies, and one reason a spread filter that pauses trading when the spread is abnormal belongs in any EA with stops measured in single digits.

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