The bid price is the price at which a market maker or a broker is willing to buy the financial instrument from you, while the ask price is the price at which they are willing to sell it to you. The spread is the difference between these two prices and represents the market maker’s or broker’s profit.
For example, if the current market price of the EUR/USD currency pair is 1.2000/1.2002, the bid price is 1.2000 and the ask price is 1.2002. The bid/ask spread in this case is 2 pips (0.0002), which is the difference between the bid price and the ask price.
The Bid/Ask spread can vary depending on market conditions, liquidity, and the type of financial instrument being traded. A tighter bid/ask spread indicates a more liquid market with a higher trading volume, while a wider bid/ask spread may indicate a less liquid market with lower trading volumes or higher transaction costs.