How to read a price quote

Two numbers, side by side 

An instrument does not have a price. It has a pair of them, published together and refreshed together, and every screen showing a tradeable market shows both. The lower of the two is the bid. The higher is the ask, also written as the offer. They move together, the distance between them opens and closes as conditions change, and at no point do they collapse into one number that could be called the price of the instrument.

The names read backwards at first, because both are stated from the point of view of the party publishing the quote rather than the party reading it. That party bids to buy at the lower number, and asks to be paid the higher number to sell. Whoever reads the quote stands on the opposite side of each, so a purchase happens at the ask and a sale at the bid, never the other way around. The common misreading is to take the bid as the price at which something is bought, because in ordinary English a bid is what a buyer makes. On a trading screen the bid belongs to the quoting party, and a holder selling into it receives the lower number.

Which price applies 

Direction determines the price, and nothing else does. A long position is opened by buying, so it opens at the ask, and closed by selling, so it closes at the bid. A short is opened by selling and closed by buying, so it opens at the bid and closes at the ask. That is the whole rule. It holds for every instrument and every venue, and it does not change with the size of the position or the type of order used to place it.

1. A long position opens at the ask, the higher of the two prices.
2. A long position closes at the bid, the lower of the two prices.
3. A short position opens at the bid, the lower of the two prices.
4. A short position closes at the ask, the higher of the two prices.

One line holds all four. The higher number is the buying number and the lower number is the selling number, at every point in a position's life. Opening and closing make no difference; only whether the action is a purchase or a sale does.

The gap between them 

The distance between the bid and the ask is the spread, and it is a property of the quote rather than a charge attached to it. Nothing is deducted to collect it and no line on a statement records it. It is collected by the geometry of the two prices: a purchase happens at the higher one and a sale at the lower one, so a round trip crosses the distance once, whichever direction it runs in. That is why the spread sits inside the price, and why a statement can show it nowhere while it has been paid in full.

One consequence follows immediately. A position is opened at one side of the quote and valued at the other, because valuing it means asking what price is available to close it. A long opened at the ask can close only at the bid, which is lower. A short opened at the bid can close only at the ask, which is higher. In both cases the position exists, at the instant of its creation and before the market has moved at all, at a small debit exactly equal to the spread.

The two halves of that block are the same distance carrying the same sign, so neither direction opens at an advantage. A position closed immediately after opening, into an unchanged quote, returns less than it cost, and the shortfall is the spread. Published figures for that distance are stated per instrument and per account arrangement, and they sit on the pricing and execution page, not inside teaching material, because a figure quoted in a lesson decays into a false statement the moment conditions change.

How many decimal places 

The number of decimal places a market prints is a convention of the instrument rather than a setting of the screen, and it is published in its contract specifications. Currency pairs quoted against the dollar are conventionally carried to four places, and most venues now print a fifth, a fractional digit reporting movement finer than the traditional smallest increment. Pairs quoted against the yen are carried to two places with a fractional third, because the unit value of the yen puts the same order of magnitude two places further left. Gold against the dollar is quoted to two places, and index contracts to one or two, varying by index.

Counting the places matters for two reasons that have nothing to do with tidiness. The first is that the gap between the two prices is read in the last places, so a miscount misreads its width by a factor of ten. The second is that a distance in decimal places is not comparable across instruments: the same digit in the fourth place of a currency pair and in the second place of a gold quote describes entirely different amounts of money. Normalising those distances into a common unit is what the next lesson does, and it starts from each quote read at its own convention.

That smallest routine increment has a name, and turning a distance measured in those increments into money is the work of the lessons that follow. This one stops at the quote: which number is which, which one an action deals on, and where the last digit sits.

Where practitioners disagree 

Two arguments about two sided quotes are genuinely unsettled. The first concerns the mid price, the average of the bid and the ask. One tradition treats it as the instrument's real level, with the spread as a charge sitting symmetrically around it, and most cost measurement rests on that assumption because measurement needs a reference point. The other answers that no transaction ever occurs at the mid, so it is a construct rather than a price, and that treating it as the truth makes every quote look like a fair price plus a fee when the two prices are simply the two prices. The disagreement is visible on a chart: platforms differ over whether candles are drawn from the bid or the mid, so the high recorded for a day can differ between two charts of one market.

The second concerns what the spread is. Cost accounting treats it as a cost, and for a position opened and closed at the prevailing quotes that is how it behaves. Market making tradition describes it instead as the price of immediacy, what a party obliged to quote both sides at once charges for standing ready to transact at any moment, and observes that the charge tracks the risk that party carries rather than a fee schedule. The two readings diverge for orders that wait rather than transact at once, the subject of later lessons in this module. Neither is wrong, and which is more useful depends on whether the question is about accounting or about why the number moves.