When it comes to trading forex, one of the most important decisions you will have to make is whether to go long or short on a currency pair. Going long means buying a currency pair with the hope that it will increase in value, while going short means selling a currency pair with the hope that its value will decrease. But when going short on forex, should you look for the asking price or the bid price? In this article, we will explore this question in-depth.
First, let’s define what the bid and ask price are. In the forex market, every currency pair has two prices: the bid price and the ask price. The bid price is the price at which you can sell a currency pair, while the ask price is the price at which you can buy a currency pair. The difference between the bid and ask price is known as the spread, and it represents the cost of trading.
When you go short on a currency pair, you are essentially betting that its value will decrease. To profit from this bet, you need to sell the currency pair at a higher price and then buy it back at a lower price. This means that you should look for the highest possible asking price when going short on forex, as this will give you a better entry point for your trade.
The reason why you should look for the asking price when going short is that you need to sell the currency pair first before you can buy it back. If you sell at a lower price than the current asking price, you will be losing money from the start. On the other hand, if you sell at the highest possible asking price, you will have a better chance of making a profit when you buy back the currency pair at a lower bid price.
It’s important to note that the asking price may not always be the highest price available. In some cases, the bid price may be higher than the asking price, which is known as a “reversed spread.” This can happen when there is low liquidity in the market, or when there is a sudden change in the supply and demand of a currency pair. In such cases, it may be better to wait for the spread to normalize before entering a short trade.
Another factor to consider when going short on forex is the size of the spread. The wider the spread, the more expensive it is to trade, and the higher the price you will have to pay to enter a short position. This is why it’s important to choose a broker with tight spreads, as this will minimize your trading costs and increase your chances of making a profit.
In conclusion, when going short on forex, you should look for the highest possible asking price, as this will give you a better entry point for your trade. However, you should also be aware of the spread and choose a broker with tight spreads to minimize your trading costs. By following these guidelines, you can increase your chances of making a profitable short trade in the forex market.
