Bid – offer ‘spread’

In the market, the exchange rate always presupposes two quotations: one for selling (bid) and one for buying (offer) the base currency.

For the credit institution (or other authorised agent):

  • The bid exchange rate is the price it charges to sell the foreign currency;
  • The offer exchange rate reflects the price that this institution accepts to pay for the foreign currency.

In the case of the institution, the selling rate is always higher than the buying rate.

For bank customers:

  • The exchange rate to buy the foreign currency corresponds to the bank’s selling price (bid);

  • The exchange rate to sell the foreign currency corresponds to the bank’s buying price (offer).

In the case of customers, the selling rate is always lower than the buying rate.

By convention, the bid exchange rates are presented to bank customers to the left of the offer exchange rates (for example, EUR/USD quotation of 1.5326/1.5328).

Customers always sell the base currency at the lowest value and always buy at the highest value.

The difference between bid and offer rates is not the same for all currency pairs. Usually, there is, in percentage, a lower spread in the quotations of the most liquid currencies, i.e. those that are more transacted. The spread between the purchase price and the sale price is therefore an indicator of currency liquidity.

Example

If the EUR/USD quotation of 1.5326/1.5328 is shown, it means that:

  • If customers want to sell one euro, they will receive USD 1.5326 (lowest value);

  • If customers want to buy one euro, they will have to deliver USD 1.5328 (highest value).

If the price quoted is 1.5326/1.5328 and customers want to buy a dollar amount equivalent to 2500 euros:

  • They should choose the EUR/USD quotation on the left: EUR 1 = USD 1.5326 (selling price of the euro);

  • EUR 2500 = 2500 x 1.5326 = 3831.50 USD, i.e. with the sale of 2500 euros the customer will receive USD 3831.50.

    

Example

If the EUR/GBP quotation of 0.7850/0.7852 is given, it means that:

  • If customers want to sell one euro, they will receive GBP 0.7850 (lowest value);

  • If customers want to buy one euro, they will have to deliver GBP 0.7852 (highest value).

If the price quoted is 0.7850/0.7852 and customers want to sell GBP 500:

  • They should choose the EUR/GBP quotation on the right: EUR 1 = GBP 0.7852 (purchase price of the euro);

  • The selling price will be GBP 1 = 1.2736 EUR (1/0.7852)

  • GBP 500 = 500 x 1.2736 = EUR 636.8, i.e. with the sale of GBP 500 the client will receive EUR 636.80.