What is the relevance of the right-hand side in forex trading?
What is the right-hand side?
In trading and investments, we have a term called the “right-hand side.” Its name suggests a lot about what it means, and we will explain it more later on. Generally, it talks about the currency pair’s offer price. This offer price is the lowest price a seller is ready to sell the base currency.
The right-hand side and forex
In a forex quote, we have the base and the quote currency. The base currency is first, and the quote currency is listed next to it. In terms of the forex quote, the right-hand side is the quote or the second currency. A forex quote tells us how much quote currency we need to buy the base currency.
So, why is it called the right-hand side?
As its name suggests, we can literally see it on the right side of the foreign exchange price quote, and it indicates the offer price. So, if we have a right side, of course, there is a left-hand side. On the left, we will find the bid price. So, if you are interested in buying at that price, you can instantly approach the seller and transact.
Let us cite an example.
Let us assume that the currency pair quote is 1.111 by 1.115. The right-hand side is 1.115, and it indicates the price that a seller is ready to sell the base currency and purchase the quote currency. Why? In forex, the currencies always come in pairs and are always exchanged. Let’s say we have EUR/USD offer. The EUR is the base and the one being sold, and the USD is the quote and the one being bought.
The relevance of the bid-ask spread with the right-hand side
If we get the difference between the bid and ask, we will get the bid-ask spread, or simply the “spread.” This spread gives us an idea about the market’s liquidity. How? The tighter the spread, the more the liquidity. Hence the transaction cost is cheaper. Some brokers earn by asking for commissions and fees, and some will say that they do not charge anything, but they get their fees or commissions through the spread.
Let us cite an example.
Let us assume that we have a EUR/ USD currency pair, and the quote says 1.111 by 1.114. The one on the left-hand side is the bid, while the one on the right is the ask or offer price. The difference we get between the bid and ask is called the bid-ask spread. The bid refers to the price that someone is willing to buy a single EUR for 1.111USD. It is also the highest price for an urgent EUR seller to make a transaction because there is a willing buyer at that said price.
The ask price at 1.114 on the right-hand side refers to the price that someone is willing to sell a single EUR for 1.114 USD. It is the lowest price that an urgent USD buyer can accept because there is a willing seller at that said price.
Let’s have a recap.
The right-hand side refers to a forex quotation’s offer price, and it is called such because it is literally at the right-hand side. It is the lowest price someone is ready to sell the base currency. It is also the price an urgent buyer can buy the base currency.