The exchange rate between two currencies is always expressed in 2 slightly different prices, whether you are looking at quotes in a bank, in an exchange, or even on the data feed of your broker. These 2 prices are the bid and ask price. Let’s assume that the price of USDCAD is currently displayed as 1.2570 / 1.2572 on the data feed of the broker you are using. The bidding price is always the lowest of the two, in this case 1.2570, while the asking price is the higher one, in this scenario 1.2572. These prices imply that the broker is willing to sell USDCAD at 1.2572 and buy it at 1.2570. The difference between the bid and the ask price is called the spread.
To understand how spreads affect us as traders, we are going to dive into a simple example of entering a trade. If we were to buy USDCAD by market execution, the price of our entry would be the ask price, in this example 1.2572, whereas if we were selling it instead our entry would be marked on the bid price, namely 1.2570. Spreads affect both the entry and the exit of a trade, so it is important to connect with a broker that has relatively low spreads. The spread is one of the ways brokers are compensated for providing their services, as the difference in bid and ask price is the profit a broker makes whenever you enter a trade.