What is Bid?
A bid price is money a buyer is ready to spend on a good or service. The bid price is less than the asking price and is the highest price a buyer will offer. The bid price is determined by a bidding process and is the highest price a buyer is willing to pay for a particular good or service.
In a bidding process, buyers submit their bids in an auction, and the highest bidder wins the item or service. The winning bid is the amount the buyer is willing to pay for the item or service. The buyer may be required to pay a deposit to secure their purchase, a fraction of the total bid amount.
The bid price is important for sellers, as it determines the amount of money they will receive for the item or service. Since the bid price represents what buyers are willing to pay for the item or service, it also impacts its market worth.
The higher the bid price, the more the seller can expect to receive for their item or service, and the better the chance of getting the item or service at a lower price.
What is Ask?
The lowest price at which a market maker is prepared to sell a specific stock is referred to as the “ask” price for a stock. It is the opposite of the bid price, the highest price at which a market maker is willing to buy a particular stock.
Typically, the ask price exceeds the bid price because the market maker is taking on additional risk by selling the stock. In return for taking on the risk, the market maker will take a certain amount of profit when the stock is sold. The amount of profit taken is referred to as the “spread” and is between one and five cents per share.
The ask price is vital to investors because it is one factor used to determine a stock’s value. Generally speaking, the higher the ask price, the more expensive the stock will be.
Difference Between Bid and Ask
- The bid price is the most a buyer will spend on a security, whereas the ask price is the least a seller would take in exchange for that security.
- As the security seller wants to make money, the bid price is always lower than the ask price.
- The bid price is the current market price of the security, which may or may not be different from the last traded price, while ask price is the price at which the trader is willing to sell the security.
- The offer price is always more significant than the most recent traded price, but the bid price is always lower.
- The bid price is the price that investors are willing to pay for a security, while the ask price is the price at which the security is bought.
Comparison Between Bid and Ask
| Parameters of Comparison | Bid | Ask |
| Price | the price a trader will pay to purchase a security | the price at which the trader will sell the same security |
| Determined by | the market forces of demand and supply | the trader or broker |
| Indicates | an indicative of the current market sentiment | an indicator of the trader’s sentiment |
| Evaluation | the value of a security | the liquidity of a security |
| Calculations | the difference in price between the ask and bid | the profits that can be earned by trading the security |