I’m getting tripped up when to use each. For example the solutions to Reading 13, Schweser Concept Checkers 16 and 17 suggest using the bid price to Mark to Market forward contracts which screwed my thinking up. I thought the investor was always supposed to get screwed by the spread, where in this case they benefit from paying a lower price.
Does anyone one understand why or have any rules to live by regarding when to use the bid and when to use the offer? Much appreciated
The investor does get screwed by the spread, but depending on how the bid or ask has moved, the investor could have made money. Same with investing stocks. If you immediately close your position after purchasing it, you lost money due to the spread. After time has passed, you can make money.
you buy at the ask and sell at the bid. Another way to look at it: you buy at the higher value and sell at the lower value.
Do you have the Schweser books 125mph? If so, I would greatly appreciate it if you could explain why the solutions to the two problems I posted in the original question imply buying at the bid
#16 the forward contract was initiated to purchase CHF. To close the contract you want to sell CHF. (CHF/USD). However, the quote structure is USD/CHF, so you use the bid. Tricky. The explanation explain it.
Use whichever one causes you to end up with the smaller amount, or which requires you to start with the larger amount.