Fx options bid ask

Bid And Asked.

What is 'Bid And Asked'

A two-way price quotation that indicates the best price at which a security can be sold and bought at a given point in time. The bid price represents the maximum price that a buyer or buyers are willing to pay for a security. The ask price represents the minimum price that a seller or sellers are willing to receive for the security. A trade or transaction occurs when the buyer and seller agree on a price for the security.

The difference between the bid and asked prices, or the spread, is a key indicator of the liquidity of the asset - generally speaking, the smaller the spread, the better the liquidity.

Also known as bid and ask, bid-ask or bid-offer.

BREAKING DOWN 'Bid And Asked'

The average investor has to contend with the bid and asked spread as an implied cost of trading. For example, if the current price quotation for security A is $10.50 / $10.55, investor X who is looking to buy A at the current market price would pay $10.55, while investor Y who wishes to sell A at the current market price would receive $10.50.

The bid-ask spread works to the advantage of the market maker. Continuing with the above example, a market maker who is quoting a price of $10.50 / $10.55 for security A is indicating a willingness to buy A at $10.50 (the bid price) and sell it at $10.55 (the asked price). The spread represents the market maker's profit.

Bid-ask spreads can vary widely depending on the security and the market. The blue-chips that constitute the Dow Jones Industrial Average may have a bid-ask spread of a few cents, while a small-cap stock may have a bid-ask spread of 50 cents or more. On a percentage basis, the difference between the bid and asked prices of the former may be much smaller than that of the latter.

The bid-ask spread can widen dramatically during periods of illiquidity or market turmoil, since traders will not be willing to pay a price beyond a certain threshold while sellers may not be willing to accept prices below a certain level.

CME Group FX Fixing Price Methodology.

CME Group has rationalized its FX fixing price methodology for both the 9:00 a. m. European-style and 2:00 p. m. American-style fixings. CME Group FX options are exercised at expiration based upon the "CME Group FX fixing price," which is a volume-weighted average price for the nearby currency futures contract released as soon as practicable, respectively, after 9:00 a. m. and 2:00 p. m. Central time (CT), which is also 10:00 a. m. and 3:00 p. m. Eastern time (ET). CME Group calculates & publishes the "fixing prices" daily for both its European-style and American-style FX options, but on option expiration days (usually Fridays), it is used to exercise in-the-money British Pound, Canadian Dollar, Euro FX, Japanese Yen, and Swiss Franc and Australian Dollar options.

The methodology for calculating the CME Group FX fixing price is composed of several "tiers" and is consistently applied to each nearby currency futures contract underlying the European-style and American-style options. Depending upon the pricing history unique to each FX futures contract during the daily calculation interval, the resulting CME Group FX fixing price calculations can be based on varying tiers. For example, the British pound and Swiss franc CME Group currency fixing prices might be based on Tier 2, but the Euro FX and Japanese yen fixings might be based only on Tier 1 on the same day. The "fixing prices" are rounded to the nearest whole (one-point) tick as defined by the respective contract’s Price Increment rule.

"CME Group currency fixing price" calculation interval is 30 seconds (8:59:30 to 8:59:59 and 1:59:30 to 1:59:59).

Volume-Weighted Average Price (VWAP) of underlying futures contract traded on CME Globex is calculated and disseminated on a real time basis during the 30-second intervals ending at 9:00 a. m. and 2:00 p. m. CT. However, if less than three trades by the end of the interval, then go to Tier 2 for the CME Globex bid/ask data (therefore, for 2, 1 or zero trades in 30-second calculation interval, then Tier 2 applies).

Calculate the midpoint of the bid/ask spread during the 30 seconds on a real time basis. Sample at least once per second (minimum of 30 observations). CME Group FX fixing price is the average of the midpoints. For liquid contracts, most of the time fixing prices will be determined via the Tier 1 procedures. If no bid/ask spreads are available during the 30-second interval, then Tier 3 applies.

Use over-the-counter (OTC) vendor contributed spot rates and forward points to calculate synthetic futures "CME Group currency fixing prices." If there are no sales or bid and ask prices during the 30-second intervals preceding 9:00 a. m. and 2:00 p. m. CT at the expiration of either a the European-style or American-style FX options contracts, then Exchange staff will derive the CME Group currency fixing price as a synthetic futures price from quote vendor spot rates and appropriate maturity forward points. The prices will be displayed on Merquote and the CME Group Website.

Knowledge of the forced exercise of all in-the-money options combined with automatic forced abandonment of all at - and out-of-the-money options enable CME Clearing, clearing firms and their customers to predict shortly after 9:00 a. m. and 2:00 p. m. Central time on Friday, which expiring FX options positions will be assigned futures positions. Therefore, customers/clearing firms will know to hedge or trade out of the newly assigned futures positions at a time when the futures and OTC markets are open and trading. Regarding the CME Group European-style FX options specificly, the OTC FX options market also values its expiring options at 9:00 a. m. Central time each day. Therefore, OTC market participants can look at their combined OTC options, futures and European-style futures options books at the same time and make appropriate trading decisions. This compatibility makes CME Group European-style FX options, in particular, appealing to OTC FX options traders.

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Online Forex trading Community.

This page covers everything you need to know about the bid and ask prices in the online Forex trading market, From the definition of Forex bid & ask prices, to the use of the bid & ask spread.

A Forex Trading Bid price is the price at which the market is prepared to buy a specific currency pair in the Forex trading market. This is the price that the trader of Forex buys his base currency in. In the quote, the Forex bid price appears to the left of the currency quote. For example, If the EUR/USD pair is 1.2342/47, then the bid price is 1.2342. Meaning you can sell the EUR for 1.2342 USD.

A Forex asking price is the price at which the market is ready to sell a certain Forex Trading currency pair in the online Forex market. This is the price that the trader buys in. It appears to the right of the Forex quote. For example, in the same EUR/USD pair of 1.2342/47, the ask price us 1.2347. This means you can buy one EUR for 1.2347 USD.

The Forex bid & ask spread represents the difference between the purchase and the sale rates. This signifies the expected profit of the online Forex Trading transaction. The value of Bid/Ask Spread is set by the liquidity of a stock. If the stock is highly liquid, it means many stock units are being bought and sold, and the Forex bid/ask spread will be lower. Traders prefer foreign currency with a lower bid/ask spread, because it means their money pair only for the currency and is not wasted on the bid/ask spread difference. A lower Forex bid/ask spread allows the trader to cut down on his losses.

The bid and the ask price in options trading explained.

Stock and future traders who venture into the world of options trading for the first time often have trouble understanding the different prices quoted for an options contract. Usually there will be 3 prices quoted: the bid, the ask and the last price.

The last price is simply the price at which the option was last traded. A good tip here is that if the last price differs significantly from the bid/ask prices, the option is probably very illiquid with little trading going on and it might be hard to find a buyer if one should want to sell it.

The ask price is the price at which the market is prepared to sell an option. This is purely determined by supply and demand; the more demand there is for a particular option, the higher the ask price will be.

Example: A hypothetical options chain shows the following prices for a particular option:

Any trader who wants to buy this option will have to pay the current ask price of $4.00 per option.

The bid price is the price at which the market is currently prepared to buy an option. This is therefore the price at which an options trader is currently able to sell that particular option.

Returning to the previous example:

If a trader wants to sell this particular option, he or she can only do so at the bid price of $3.80.

The difference between the bid price and the ask price is called the bid/ask spread. This represents the profit of the market maker. Market makers would buy the options at the bid price and sell them at the ask price.

What is important here is the so-called bid/ask spread loss. To explain this, the same examples as above can be used, with a bid price of $3.80, and an ask price of $4.00.

Someone who buys a call option at the ask price of $4.00 and wants to sell it again 5 minutes later, would only be able to do so at the bid price of $3.80. This represents an immediate loss of $0.20 per option, i. e. $20 per contract of 100 options right from the start.

While a loss of $0.20 on a $4 option might not be much (5%), this can become a totally different scenario if the bid/ask spread should move much further apart – something which often happens with illiquid options and if the options are far Out of The Money.

In the example above, if the ask price remained at $4, but the bid price dropped to $2, which can easily happen with forex options, an options seller who sold the option for $2 five minutes ago would have to pay double that price to buy it back again – and if the price of the underlying starts moving in the wrong direction this could quickly rise to multiple times the price at which the options was originally sold.

For the options buyer such a wide bid/ask spread means the price of the underlying asset would have to move a very large amount before the option can be sold at a profit.

It is vital to take the bid/ask spread into account when a trader plans a particular options strategy, since this can significantly affect the outcome of a trade with a small potential profit.