Discussion Forum
1

# How to bid and ask?

The term bid and ask refers to the best potential price that buyers and sellers in the marketplace are willing to transact at. In other words, bid and ask refers to the best price at which a security can be sold and/or bought at the current time.

The bid price is the price that an investor is willing to pay for the security.

For example, if an investor wanted to sell a stock, he or she would need to determine how much someone is willing to pay for it. This can be done by looking at the bid price. It represents the highest price that someone is willing to pay for the stock.

The ask price is the price that an investor is willing to sell the security for.

For example, if an investor wants to buy a stock, they need to determine how much someone is willing to sell it for. They look at the ask price, the lowest price someone is willing to sell the stock for.

Bid and ask is a very important concept that many retail investors overlook when transacting. It is important to note that the current stock price is the price of the last trade – a historical price. On the other hand, the bid and ask are the prices that buyers and sellers are willing to trade at. In essence, bid represents the demand while ask represents the supply of the security.

For example, if the current stock quotation includes a bid of \$13 and an ask of \$13.20, an investor looking to purchase the stock would pay \$13.20. An investor looking to sell the stock would sell it at \$13.

John is a retail investor looking to purchase stocks of Security A. He notices the current stock price of Security A is at \$173 and decides to purchase 10 shares for \$1,730. To his confusion, he noticed that the total cost came out to \$1,731.

John assumed that it must’ve been an error. He later realizes that the current stock price of \$173 is the price of the last traded stock of Security A and that he paid the asking price of \$173.10.

The difference between the bid and ask prices is referred to as the bid-ask spread. The bid-ask spread benefits the market maker and represents the market maker’s profit. It is an important factor to take into consideration when trading securities, as it is essentially a hidden cost that is incurred during trading.

For example, if a security received a bid of \$10 and an ask of \$11, an investor would expect to lose \$1 or 9% of their investment if they bought at the asking price of \$11 and then immediately changed their mind and sold at the bid price of \$10.

When the security is highly traded (liquid), the spread will be low. On the other hand, when the security is seldom traded (illiquid), the spread will be larger. For example, the bid-ask spread of Facebook Inc., a highly traded stock with a 50-day average daily volume of 25 million, is one (1) cent.

[5]
Edit
Query
Report
TAX PREPARER

Reliance Share Price

ITC Share Price

HDFC Bank Share Price

Infosys Share Price

TCS Share Price

ICICI Bank Share Price

[5]
Edit
Query
Report
Psychologist

The term "bid " refers to the highest price a buyer will pay to buy a specified number of shares of a stock at any given time. The term "ask" refers to the lowest price at which a seller will sell the stock. The bid price will almost always be lower than the ask or “offer,” price.

[2]
Edit
Query
Report
ALMOND BLANCHER HAND

A two-way price quote that represents the best possible price when a security can be traded and acquired at a certain moment is referred to as "bid and ask" (sometimes called simply "bid and offer"). A buyer's maximum value that they are ready to shell out for a share of stock or even other assets is represented by the bid price. The least amount a seller will accept for the identical security is represented by the asking price.

When a seller is prepared to sell for the highest price or when a buyer is prepared to accept the ideal offer on the marketplace, a transaction or trade happens. One important measure of an asset's liquidity is the spread, which is the gap here between ask and bid prices. Liquidity is often better the narrower the spread.

A bid is a maximum price a buyer is ready to pay for a share of stock on a stock exchange, while an ask is the lowest price a seller is willing to accept.

Asks are the supply side of the share market, whereas bids are the demand side. The stock's market price hikes if there are more buyers (bids) as compared to that of sellers (asks) unless demand and supply are balanced. As per this, a stock's price drops when there are relatively more sellers than that buyers unless and until the demand and supply are balanced.

The gap between the bid and ask prices is known as the bid-ask spread (often referred to as the spread) for a share. Security is much more liquid the narrower the bid-ask spread goes; the bigger the spread, the less liquid the security. Alternatively said, equities with a greater overall balance of sellers and buyers are likely to have narrower spreads and are hence simpler to trade effectively.

The ask price, or the lowest possible price a seller would take at the moment, is what a trader pays when buying a stock. Yet, a trader only gets paid the bid price if they trade a stock.

Given that they are the ones who sell the stock, it could be perplexing that a trader must sell the shares at the bid price instead of the asking price.

Yet, in practice, traders don't purchase or sell to certain other traders directly; instead, market makers operate as invisible intermediaries to complete every transaction. They both acquire shares through traders who must offload them and sell them to traders who must purchase them.

These institutions exist to offer the liquidity required for traders to execute purchases and sales immediately, as opposed to needing to wait to be paired with a trader in the opposing position. Every market maker has enough of the company's stock at any one moment to be able to complete buy and sell trades very immediately.

Market makers receive the bid-ask spread out of each transaction as payment for their services. Individual traders are thus required to purchase at the asking price as well as to sell at the bid price.

There is usually plenty of liquidity in the security whenever the bid and ask prices are fairly close. The security in question is considered to possess a "narrow" bid-ask spread inside this case. Investors may benefit from this circumstance since it makes it simpler for them to enter or exit their holdings, especially in the case of big stakes.