5 The Spread - Bid and Ask The Spread - Bid...Oanda's spreads are the best I have ever traded...

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5. The Spread + Bid And Ask

Before continuing, let’s have three quick graphics which explain howthe chart reflects the action of entering and exiting a trade when weclick ‘Submit’ on a Market Order.

In this instance, I have used a 1 minute chart to demonstrate. (We nev-er trade in a 1 minute chart ;-)

So, the blue triangle (shown in the circle) immediately appeared auto-matically, showing exactly where I entered a ‘buy’ trade (blue for buy) .

About five, 1 minute candles later, I clicked a ‘sell’ market order to exitthat trade. (The orange triangle in the circle - orange for sell) And asyou will see, the price went up, and I closed the trade for a small profit.

So if you open a sell trade, submitting a buy order (for the samenumber of units) closes the buy trade.

If you open a buy trade (as I did here) and you then submit a sellmarket order, the sell order closes the buy trade.



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OK - let’s get back to work…

Good News . . . We're approaching the end of this first section and we'llsoon have a complete shift of emphasis.

The Bad News . . . This lesson is a little more complex. You may not'pick it all up' first time, so please, take your time and read through itmore than once. There are no prizes for being first to finish and you canalways revisit it later.

We're going to be looking at THE SPREAD

Please recap these paragraphs on Buy and Sell trades next . . .

In Forex it is just as easy to make money when the price is falling, as it iswhen the price is rising. Please read and absorb the following.

BUY-TRADE & SELL-TRADE.BUY trades are easy to understand. You buy something at a certainprice. You want the price to rise. The price does rise, and you sell it formore than you paid. So you made a profit.

But when we're actually trading, let's forget about talking of 'buying' and'selling' - let's use the words ENTER and EXIT. This will be much lessconfusing.

In a BUY trade - you ENTER at a certain price, hoping that the price willgo UP. If the price DOES go UP - you EXIT at the higher price - and thedifference in pips, is your profit.

In a SELL trade - you ENTER at a certain price, hoping that the price willgo DOWN. If the price DOES go DOWN - you EXIT at the lower price -and the difference in pips, is your profit.

The skill is in choosing a Buy trade or a Sell trade based on thetrading strategies you will learn about later. Trading strategies de-termine how and when you trade and will give you a trading ‘ edge.’

If you determine that the price will go down - you pick a Sell trade, andmake your profit when it falls. If you think the price will go up - you pick aBuy trade, and make your profit when the price rises.

Ok - more on all this later - just for now, realize that trading is all aboutsimply determining whether the price will rise of fall - and choosing a Buytrade or a Sell trade accordingly.

Now . . . let’s see if we can finish with the mechanics of it all. As we startwith this lesson, we'll be looking at our dotted lines again - remember,they show the current price with ‘bid’ and ‘ask’ lines.

Let’s go and see what I’m talking about. Turn over for another picturewhich we will use as Step 1, on the path of this particular lesson.



We will be referring back to the lesson on ‘Default Settings’ and makingsome TEMPORARY alterations in order to make this explanation as sim-ple as possible.

Once again, take your time over this, once you have it in your brain - it’llstay there for ever ;-)

In the Default Settings lesson, we ticked the icon next to the buy button(shown below) and in that drop-down menu, we ticked, ‘Show Ask Price’and ‘Show Bid Price.’

For this part of this lesson, please UNTICK ‘Show Ask Price‘ as shownin the graphic below.

(We will be returning to this later and re-ticking it to our default setting).

Please note that on the chart, as soon as we untick ‘Show Ask Line‘ itremoves the upper of the dotted lines on the chart, and we are left withthe lower - the bottom line - the ‘ bid ‘ line.



Now - on with the subject. (It will help a lot if you refer back to pages 2and 3 of Lesson 2. ‘Explaining Pips’ during this next section).

The forex broker does not get paid in the way that you may think. Hetakes his commission, up front, as soon as you enter a trade.

When you ENTER a trade, whether it's a Sell trade or a Buy trade, youare forced to start an arbitrary number of pips BEHIND the position youenter the trade at - your ENTRY POINT.

For instance, suppose you Enter a Sell trade at 1.2304. (You want the priceto go down.) The moment you click the submit button - you'll see the entrytriangle appear on the chart and lo and behold, instead of the dotted lineshowing at the current price of 1.2304 - it's showing 1.2308.

You are 4 pips behind (above your Entry position) before you start.

A glance at the chart or at the shows you at 4 pips negative - you arelosing money!!

That 4 pips is the SPREAD. (Usually with the GBP/USD we would only have aspread of around 2.5 pips the EUR/USD is usually 1 pip. I’m using 4 because it makesit easier to demonstrate)

You have to make that 4 pips to ‘break-even’ - before you start to makemoney. If the trade goes against you - you will simply add to your nega-tivity. However, on the good side, no matter much you make - you stillonly pay the spread once in each trade. If you do twenty trades a day -you will pay the spread 20 times.

When we say we have made 10 pips - that means we have made thespread AND made 10 pips on top of that.

We know that we had to make the spread AND 10 pips to make 10 pipsprofit.

We never bother to mention the spread when we talk pips.

If your target for the day was 10 pips, you would never say that your tar-get was 14 pips.

It's taken for granted that when we say 10 pips - we mean the spreadAND the 10 pips.

In other words folks: We know the spread is there. We know we have tomake it. But we don't make a big deal of it because there is a huge bo-nus with this arrangement. We never, ever get a bill from the broker. We‘pay as we go’ - it’s a great arrangement.

If your daily target was 5 pips - you would never say, 'my daily target is 9pips' because of the spread. It's there we know it - - - we do it - - and ig-nore it.

Everyone finds this difficult to accept at first, but it’s the normal andrealistic way to approach becoming a trader. You must get used to ac-cepting this as the norm and NOT question it.



Now - referring to Page 4 of this tutorial and using the explanatory graphicagain:

1. Please untick the ’Show Bid Price’ box.2. Insert a tick in the ‘Show Ask Price’ box.

In future we’ll simply refer to this as the ‘Bid Line’ or the ‘Ask Line’ boxes.After you’ve done this - we’ll move on.

The spread is different for different currencies.

Oanda's spreads are the best I have ever traded although they are ‘varia-ble’, which means they can change at times of higher/lower liquidity.

This is not a problem and we'll explain this fully later on.

Here is a current Oanda spread table - the spreads are on the right. (Notethat it’s called, ‘Favorites List’.)

And the arrow points to the current spread on the GBP/USD which is, inthis instance 1.6 pips

Spreads do fluctuate according to market liquidity and volatility. We’ll becovering that later, it does not affect any of the current lessons

(Your own live spread table is in the left hand bottom quadrant of the Primary window.)



Now - there is a little more to this than is at first apparent. The dotted lines that yousee on the chart - show you your EXACT price position INCLUDING the spread.

We’ll assume a 4 pip spread. So in a sell trade, as you enter the trade, the dotted‘Ask’ line automatically allows for the spread and would be positioned 4 pips behind.

In other words it will be 4 pips HIGHER on the scale than your entry point. It will be4 pips ABOVE (behind) your entry point. (Remember we are in a SELL trade. Wherever weenter - positive pips occur as the price falls).

Thus - you can tell at a glance your ACTUAL current price position, including thespread, just by looking at the dotted line in relation to the entry point. So you neverhave to THINK about the spread - it's done for you, automatically and graphically.

You can see the dotted line. You can see your Entry point in relation to the dottedline. So you can see your whole position, spread and entry, at a single glance with-out having to think about it at all.

However - there's a fly in the ointment.

What if this had been a BUY trade instead of a SELL trade? In a BUY trade, if thedotted line was 4 pips higher than the entry point - we'd be 4 pips in profit straightaway - and the broker would be losing 4 pips instead of getting 4 pips commission.

The platform cannot change the dotted line for you automatically, WE have to do itmanually.

We simply un-tick the ‘Ask Line’ box and tick the ‘Bid Line’ box to change the linemanually. And that’s it, we simply select the Bid Line or Ask line to change whichone we see.



The next two graphics explain exactly what happens. First, we’ll look at what wedo in a ‘Buy’ trade using the ‘Bid’ line instead of the ‘Ask’ line.

Here’s a buy trade. (At a different time, ignore that we have different numbers).

So just checking with you that we have now ticked the Bid Line box . . .

This puts a different dotted line on the chart. A line called a BID line which weuse for BUY trades.

We’ll enter the market at 1.9624.

Immediately, the blue, BUY triangleappears at 1.9624.

The new BID dotted line appears at1.9620 - 4 pips (the spread) BELOWand behind our Entry point.

The blue entry point triangle willstay in exactly the same place untilwe close the trade - but the dottedline will move as the price changes.

We are currently 4 pips negative (thespread) If the dotted line (the price)moves up, our negativity will de-crease and as the dotted line pass-es the point of the blue triangle - wewill go into profit. If the price (the dot-ted line) falls, we will go deeper intonegativity.

For BUY trades we need the BIDdotted line.

For SELL trades we need the ASKdotted line.

Good news! There’s an easy wayto remember this.For BUY trades we need the BID line. Buy and Bid both start with B.So simply put the B's together --- BUY trades need the BID lines.If you are Buying - you need a Bid dotted line, and the line willbe BELOW your entry point. (B - B - B)

If you are Selling - you need a Ask dotted lineand the line will be Above your entry point. (S - A - A)Now a word of advice. Don’t let yourself be overwhelmed by this at the moment.It looks much more complex than it is in practice.

Now turn over and read on for a really great tip.



The Oanda platform is unusual. As you have already seen, you can actually, trade‘right on the charts’ which very few other platforms allow you to do.

You can move stops and limits, close trades and do all sorts on this simple interfacethat you cannot do with most other systems.

This is a wonderfully SIMPLE and EASY way to trade. Of course you have to get usedto it but that will come much easier than you may think right now.

With other systems your charts are completely separate from your monetary and pipmanipulations. Everything has to be done in a different window and Stops and Limitsset and adjusted from a table.

All of this can be done ON THE CHARTwith Oanda with a single mouse click.

THE ONLY THING the software cannotdo, is to determine the difference for youbetween the Bid and Ask dotted lines.YOU have to do that.

But there’s even an easy way aroundthis - and I use it all the time.

I’ve become so used to it I find it strangeto trade in any other way.

I tick BOTH boxes - and have the BidLine and the Ask Line up together.

This gives me BOTH dotted lines on thechart . (In this example, the spread is 4 pips andyou can see it straight away)

Now for me it’s so SIMPLE. If I’m in aBUY trade I watch the BOTTOM line BE-LOW and ignore everything else.

If I’m in a SELL trade I watch the TOP lineand ignore the other one.

Try it out for yourself - it’s SO EASY onceyou give just a little time to get used to it.

Ok - because this is a fundamentally im-portant lesson and I want you to makesure you understand it - here is a shortvideo to help. It was made a little whileago but is perfect for our purpose.

After the video - please spend 20 to 30minutes becoming really familiar with everything you have learned in this lesson.

URL: www.forex4training.com/course/v5/5.mp4

Self-test on the next page ;-)

TIP

TIP

www.forex4training.com/course/v5/5.mp4



Please answer these questions before moving on to the next tutorial.

If you don’t get ALL the answers absolutely correct, you must go throughthe lesson again to identify your error. (Answers at the bottom of thepage.)

1. You enter a SELL trade. Which way do you want the price to go ?A. Down.B. Up.C. Sideways. .

2. How do we access the menu to change to a bid or ask dotted line?A. Click on a green candle.B. Go to Tools ---> Preferences ---> Bid Line.C. Click on the icon top right next to the Sell button.

3. How does the broker get paid for the service he providesA. By standing order from a savings account.B. From the spread.C. By contractual obligation.

4. How do you find a table which shows the spreads for all currencies?A. In the Sunday Times.B. In the New York Times.C. In the Quotes window, bottom left of the primary screen..

5. When would you use the Average dotted line?A. Thursdays.B. At the close of trading.C. Never.

6. Which dotted line is applicable in a Sell trade?A. The bid line.B. The Maginot line.C. The ask line.

7. Which dotted line is applicable in a Buy trade?A. The ask line.B. The bid line.C. The tide line.

Answers: (1. A.) -- (2. C.) -- (3. B.) -- (4. C.) -- (5. C.) -- (6. C.) -- (7. B.)

5 The Spread - Bid and Ask The Spread - Bid...Oanda's spreads are the best I have ever traded...

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