Understanding what is bid and ask in CFD trading is essential because these two prices affect how your trades are executed and how much each position costs to open.
In Contract for Difference (CFD) trading, the gap between these two prices determines the initial cost of every trade. Whether you are opening a short-term intraday position or holding a trade overnight, you buy at the ask price and sell at the bid price. This affects your profit or loss before the underlying market has moved.
Quick Takeaways
- The bid price is the highest price a buyer is prepared to pay. It is the price at which you sell a CFD.
- The ask price, also known as the offer price, is the lowest price a seller is prepared to accept. It is the price at which you buy a CFD.
- The difference between the bid and ask prices is called the bid-ask spread. It represents an immediate trading cost.
- Market orders are filled at the current bid or ask price, while stop-loss orders on short positions are triggered by the ask price rather than the bid price.
What Are Bid and Ask Prices?
To fully answer what is bid and ask in CFD trading, it helps to look at each price separately. The bid price is the highest price currently available from a buyer in the market. For a CFD trader, it is the price at which you can sell, open a short position or close an existing long position.
The ask price, often called the offer price in UK markets, is the lowest price currently available from a seller. Regulatory reviews from the Financial Conduct Authority (FCA), the UK's financial regulator, have specifically examined how spreads behave in the CFD and spread-betting market — see the FCA's Market Watch 73 on CFDs and spread bets for more detail. It is the price at which you open a long CFD position or close an existing short position.
Market quotes show these two prices side by side. For example, a currency pair may be quoted at 1.0850 / 1.0852, while an index may be quoted at 18,200 / 18,201. The lower figure on the left is the bid price, and the higher figure on the right is the ask price.
This two-price structure exists because buyers and sellers have different aims. Buyers want to pay as little as possible, while sellers want to receive as much as possible. Liquidity providers and market makers help trading take place by quoting both sides of the market. They provide a bid price at which they are prepared to buy from you and an ask price at which they are prepared to sell to you.
How Do Bid and Ask Prices Work in Practice?
Once you understand what is bid and ask in CFD trading, the next step is seeing how a CFD trade is actually executed and which price applies to each direction.
When you go long, or buy, you open the position at the current ask price because you are buying the contract from the provider. When you later close the long position, you sell it at the current bid price.
When you go short, or sell, you open the position at the current bid price. To close the short position, you buy the contract back at the current ask price.
Trade Direction | Opening Price | Closing Price |
|---|---|---|
Long (buy) | Ask price | Bid price |
Short (sell) | Bid price | Ask price |
Because the ask price is always higher than the bid price, a newly opened CFD position usually begins with a small unrealised loss.
It is common for new traders to become concerned when they see an immediate negative profit and loss (P&L) after opening a position. This is sometimes mistaken for slippage or slow execution, when it usually reflects the spread instead.
This initial negative value represents the price difference the market must move through before the position reaches break-even.
What Is the Bid-Ask Spread?
The difference between the bid and ask prices is called the bid-ask spread. It is one of the main transaction costs charged by brokers and liquidity providers for offering immediate trade execution.
To see how the spread fits alongside other fees, read our guide to CFD trading costs. The spread is built into the quoted prices rather than charged as a separate fee. For a more detailed explanation of how brokers structure spreads, see our guide to what is spread in trading.
Consider the following example:
- Asset quote: $100.00 bid / $100.10 ask
- Spread: $100.10 − $100.00 = $0.10 per CFD unit
- Trade size: 1,000 CFD units
- Opening order: You buy 1,000 units at the ask price of $100.10, giving the position a total nominal value of $100,100.
If you closed the position immediately, with no movement in the underlying market, you would sell at the bid price of $100.00. The position would therefore close at a nominal value of $100,000.
The resulting $100 loss is calculated as follows:
$0.10 spread × 1,000 units = $100
This is the initial cost of crossing the spread. The market would need to rise by at least $0.10 in your favour for the position to reach break-even, before any other trading costs are considered.
What Causes Spreads to Widen or Narrow?
The distance between the bid and ask prices changes according to market conditions. Spreads can widen or narrow depending on liquidity, volatility and trading activity.
Understanding these changes can help you avoid entering positions when trading costs are unusually high.
Market Liquidity
Highly liquid markets, such as major currency pairs, leading share indices and widely traded commodities, usually have a large number of active buyers and sellers.
This deeper order flow allows market makers to quote narrower spreads, which can reduce trading costs for retail traders.
Less liquid markets, such as exotic currency pairs or small-cap share CFDs, usually have fewer participants. As a result, spreads are often wider.
Volatility and Economic News
Spreads can widen sharply during major economic announcements, central bank interest rate decisions or unexpected market events.
During these periods, prices may move quickly and liquidity providers face a greater risk of adverse price changes. They may therefore increase the distance between the bid and ask prices until market conditions settle.
Trading Hours and Rollover
Trading activity changes throughout the global trading day.
Spreads are often narrowest when major financial centres are open at the same time, such as during the overlap between the London and New York sessions.
Outside the main trading hours, or during daily rollover periods, market liquidity may fall. This can cause spreads to widen, even on widely traded instruments.
How Do Order Types Interact with Bid and Ask Prices?
Managing bid and ask prices involves more than choosing whether to buy or sell. Different order types respond to different market prices.
Market orders are executed at the best available price. Long positions are opened at the ask price, while short positions are opened at the bid price.
Limit orders and stop orders are triggered only when specific price conditions are met.
A Common Bid-Ask Execution Trap
Most standard trading charts display the bid price by default.
If you hold a short position, your stop-loss is a buy order. This means it is triggered by the ask price rather than the bid price shown on the chart.
During periods of spread widening, the ask price may rise far enough to trigger your stop-loss even though the bid price on the main chart appears to remain below the stop level.
Displaying both the bid and ask price lines on a chart is one way to account for this. It can help set stop-loss levels that allow for the possibility of wider spreads during periods of low liquidity.
Conclusion: Why Do Bid and Ask Prices Matter?
Bid and ask prices form the basic pricing structure used to execute trades in financial markets, and understanding what is bid and ask in CFD trading helps you anticipate costs before you open a position. The bid price is the price at which you sell, while the ask price is the price at which you buy. The difference between them determines the immediate cost of entering a CFD position. By including the bid-ask spread in your position sizing and understanding how liquidity and volatility affect prices, you can manage trading costs more effectively.
When you are ready to compare how these costs vary between platforms, our CFD broker reviews explain the cost structure of individual brokers.
FAQ
Why do I buy at the ask price and sell at the bid price?
Financial market transactions require a buyer and seller on opposite sides. When you open a buy position, you purchase from a market provider willing to sell at the ask price. When you sell, you execute against a buyer offering the bid price.
What is the difference between bid price, ask price, and last price?
The bid price is the current sell quote, and the ask price is the current buy quote. The last price is simply the valuation at which the most recent transaction occurred, which sits between or at one of the active bid/ask levels.
Is the bid price ever higher than the ask price?
In standard open markets, the bid price is never higher than the ask price. If the bid exceeded the ask, an immediate arbitrage opportunity would exist, which liquidity providers instantly clear to maintain an orderly two-sided market.
How do brokers make money from the bid-ask spread?
Market makers and CFD brokers earn revenue by maintaining a continuous spread between the bid and ask quotes. By selling to traders at the higher ask price and buying from them at the lower bid price, the broker captures the spread as compensation for providing immediate liquidity.
Why do stop-loss orders on short positions trigger on the ask price?
Closing a short position requires buying back the contract. Since all buy transactions execute at the ask price, your short stop-loss order is evaluated against the ask price line rather than the standard bid chart line.