What Is the Left Hand Side (LHS)?
The left-hand side, or bid, indicates the price at which the dealer, trader, investor, or market maker (MM) is willing to buy a security or currency, and the right-hand side, or ask, indicates the price at which the participant is willing to sell the security or currency.
LHS can be contrasted with the right-hand side (RHS) of a currency quote, which refers to the offered price.
- The left-hand side (LHS) refers to the bid price in a forex quotation, since the bid price appears on the left in a two-way price quote and the offer on the right.
- The bid price is the highest price someone is willing to buy the base currency or the price at which a seller can sell the base currency in the market.
- The size of the bid/ask spread is an indicator of the current liquidity in a market. A tight spread means there is good liquidity.
Understanding the Left Hand Side (LHS)
The left-hand side is literally on the left of a price quote, with the ask appearing on the right-hand side. The left-hand side is the bid price, and the highest advertised price an entity is willing to buy at. Someone who wishes to sell could transact with this buyer instantaneously.
If a price quote is 1.0510—1.0515, then the left-hand side price, the bid, is 1.0510, while the offer (right side) is 1.0515.
The difference between the right and left, or bid and ask, is the spread. The spread is one indicator of how much interest and activity there is in a particular market. If the spread is small, that typically means there are lots of active participants trying to outmaneuver each other which creates a small spread. If there is a large spread, it typically means there are fewer participants and those that are bidding or offering can set the rate, and in doing so will typically want to bid lower or offer higher, creating a larger spread.
If the GBP/USD is trading at 1.2420 by 1.2422, someone is willing to buy the British pound versus the U.S. dollar at 1.2420. Since they are bidding at 1.2420 they are not guaranteed to have their order filled. Someone will need to sell to them at that price in order for a transaction to happen at 1.2420. 1.2420 is the left side. If someone wants to buy instantly, they could buy from the right side (offer) at 1.2422.
Example of the Left Hand Side in a Forex Transaction
Assume the USD/CAD two-way price quote is:
This is a two pip spread. The quote means that someone is willing to buy one USD for C$1.3010 (Canadian dollars). This is the left-hand side.
On the right-hand side, someone is willing to sell one USD for C$1.3012 (Canadian dollars).
A trader interested in making a trade could place a bid or offer at another price. They could also transact with the bid and offer that are there. For example, someone wanting to sell could sell to the bidder at 1.3010. Someone who wanted to buy could buy from the offer at 1.3012. Both of these actions would result in immediate execution, assuming the bid or offer is still there when the trader's order is placed.