What is the Bid/Offer? | GKFX
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Education

What is the Bid/Offer?

What is the Bid/Offer?

Nearly every financial market in the world has a two way price. This is the price that you buy and sell that particular market at. When dealing in CFDs, the currency you are trading in is usually whatever the underlying currency of that market is. So a UK equity would be traded in Sterling while a US commodity would be traded in US Dollars.

What is a Point/Pip/Tick?

A point, pip or tick is the smallest unit that a market usually moves in. So for example with Vodafone, as it is a UK stock, it trades in pence. The smallest it moves is in tenths of a penny. Equities from all other countries are quoted normally so in France for example, France Telecom may be at 16.95 which mean 16 Euros and 95 cents. So here one cent is a tick.

What is tick value?

It is often useful to know what the tick value of a trade is to help calculate what your profit or loss (P L) is or would be in a given situation. It simply represents the financial implication of a 1 point move in the trade. So if you had bought £5,000 of Vodafone CFD’s then for every point it moves you would make or lose £5,000 / price (say 142) = £35.21 depending if it went up or down. You could also calculate this by knowing the number of CFD’s you had traded in. So in this example to buy £5,000 worth of Vodafone CFD’s you would have to have bought 3,521 CFD’s (£5,000/£1.42). So for every pence movement the tick value would be 3,521 x 0.01 = £35.21.

What is lot size?

Some trading platforms have been designed to simplify trading for clients. Meta Trader for example uses a system known as ‘lots’ to enter the amount that you wish to trade. Basically on MT4 1 lot is equal to one share, and it is as simple as that. If you wanted to buy 500 shares, which is the same as 500 CFD’s then you would buy 500 lots. On most CFD’s you can trade in tenths of a lot. So you can limit the amount you trade in. (Please note that for Foreign Exchange trading the lot size is different. All lot sizes are shown on our Market Information Sheets).

What are Orders? (Risk Management)

An order is an instruction to open or close a position at a specific price chosen by you. They are useful if you are unable to follow the live prices of that market, as you can choose at what price you wish to enter the market (by placing an opening order) or exit the market (by placing a closing order). Closing orders can be used for limiting your risk or taking profits. An order can be valid over a specific time period and will either be triggered or will expire, whichever one comes first. They can be used to limit losses to a predetermined limit, although this is not necessarily guaranteed as markets can gap through levels.

What are Stops and Limits?

A stop order is an instruction that is executed only when the price of a market reaches a specified level that is less favorable than the current market level. A stop loss order is an instruction that is executed only when the price of a market reaches a specified level that is less favorable than the current market level, this is typical used to close an open position. A limit order is an instruction that is executed at a specified level when the price of a market reaches a level that is more favorable than the current market price. This type of order can be used to open or close a position. The following three examples are of different types of orders. These are all in Vodafone and assume that the current market price is 141 - 142.

An example of a stop order

You decide that if the market falls to 135 then it is going to keep going down, and you want to sell £5,000 of Vodafone (3,700 CFD’s) if it gets there. So you want to leave an order that will trigger if we get to that level and open a new position. The order you leave is Sell 3,700 Vodafone at 135 stop. As you have not specified a cancellation time for the order it will be worked until such time as it is executed or cancelled manually.

An example of a stop loss order

You currently are short 3,700 Vodafone at £1.30 and are losing money as it is trading higher. You want to try and limit your potential loss to 35 ticks. This would be at (£1.30 £0.35) £1.65. If this was triggered at that price then you would lose £1,295 (3,700 x £0.35). The order that you would attach to your open position is Buy 3700 Vodafone at 165 Stop Loss. If our offer gets to 165 then the system would close you out. An example of a limit order You currently are short 3,700 Vodafone at £1.41. You want to leave an order to take your profit if it goes lower to say £1.30. So you would attach a T/P (take profit) order to your position to BUY 3,700 Vodafone at 130. If this order is triggered then you would make £407 (3,700 x £0.11).

RISK WARNING

All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved, and seek independent advice if necessary.See our full Risk Warning and Terms of Business for further details.

Our products are traded on margin and carry a high degree of risk. Losses can exceed your initial deposit.