Note that the market can have two prices at any given time:
- The Ask price at which an asset is bought
- The Bid price, at which an asset is sold
There is also the Mid price, which is used to build charts on Libertex. The Mid price is the average price between the Ask and Bid prices (Mid = Ask + Bid)/2)
The difference between the Bid and Ask is called the Spread.
The difference between the Bid and Ask prices is called the Spread.
Libertex builds charts based on the Bid and Ask prices. In this example, the current price of Brent crude oil on the chart is $63.26. This is the Mid price, which is the average value of the Ask ($63.27) and the Bid ($63.24) ($63.26=($63.27+$63.24)/2). Please note that the historical price charts are also built using Mid prices. You can find information about which prices are used to build charts on Libertex in Section 4 of the Service agreement.
Why is the price at which the trade is executed different than the one on the chart?
(Why is the price at which the trade is executed different than the one on the chart?)
But if you have an open sell order, the trade executes at the Ask price.
There are two possible trade options. One is a sell trade. If you're selling, look at the price on the chart — the Mid price — then click 'Sell'. The trade will execute at a different price: the Ask price.
Or you have a placed Buy order (as in the screenshot above). You see the Mid price in the chart, it's $63.26, then click 'Sell' but the trade executed at a different price: the Bid price $63.24.
These are the two prices you see when trading: the Ask price (the price you pay to buy an asset) and the Bid price (the price you pay to sell an asset). There's also a middle price (Mid=(Ask+Bid)/2) and the graph is built based on one price only, Mid.
When we place a Buy order, the trade executes at the Ask price. You can't see this price by default in the chart, because the chart is built on the Mid prices.
The same is valid for Sell. When we place a Sell order, the trade executes at the Bid price (the price you pay to sell an asset). You can't see this price by default in the chart, because the chart is built on the Mid prices.
The next thing happens: you see a chart of Brent crude oil, and it shows a price of $63.27 (as in the screenshot above). You place a Buy order, and it'll open at the $63.25 price, or you place a Sell order, and it'll open at the price of $63.28. Why so?
Here's a slightly different scenario.
The goal of trading is to make a profit.
Here's an example.
For example, let's say that you've studied the real estate market and think that prices are going to rise. You buy a house at what you think is the lowest possible price (let's say $50,000) on the expectation that it will increase in value down the road. This is similar to how the Ask price works. In six months, housing prices have increased, so you decide to sell. Now you're on the seller side of the equation. If you want to sell it quickly, you sell at the best buy price (the Bid) at $57,000. The difference ($57,000-$50,000=$7000) is your profit.
Here's another example.
You have a house that no one lives in, but it's pretty big, and you want to sell it. You sell it for $90,000 (the Bid price). After two years, housing prices have dropped significantly, so you decide to repurchase the house. To your surprise, it now costs only $79,000. So you buy the house for $79,000 (the Ask price) and make a profit on the change in price ($90,000-$79,000=$11,000).
This same principle applies to the Forex market. You'll also need to account for the following:
When you click "Buy", the trade is executed at the Ask price, and the trade is closed at the Bid price.
When you click "Sell", the trade is executed at the Bid price, and the trade is closed at the Ask price.
The main takeaway is: when executing trades at the Ask or Bid price, don't base yourself on the Mid price. Instead, focus specifically on the Ask or Bid price.