Resource Center : Bid vs. Offer

The bid is the price at which the market would buy the currency pair (before any commissions or fees), the offer (or ask) is the price at which the market would sell the currency pair (before any commissions or fees).

FX rates are always quoted in terms of the unit currency, where 1 of the "unit" currency yields X of the terms or settlement currency (the second currency in the pair). For example, a USDCAD exchange rate of 0.9950 means that 1 USD will yield .9950 CAD. Since the rate on the bid is always lower than the rate on the offer, it is then easy to determine whether you're on the bid or offer when asking for a quote. If you're buying the unit currency from your dealer, you will always receive a price that is higher than the price at which you sell it (as your dealer always wishes to buy low and sell high). As such, the price you receive will be on the offer.

For example, with AUDUSD, I would buy AUD from the customer on the bid, thereby selling them USD. Alternatively, I would sell (or offer) the unit currency, AUD, on the offer and buy the second currency; USD.

Example:

A Canadian company will need to purchase 100,000 US Dollars to pay for imported goods.

The USDCAD quoted rate is 1.0500 on the bid and 1.0550 on the offer, by convention the USD is the unit currency and CAD is the terms currency.

The company will have to buy the USD on the dealer's offer, and will pay 1.0550 for each dollar bought.

The importer pays 100,000 x 1.0550 = 105,500 CAD.