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What is bid and ask?

Bid and ask refers to a terms in stocks or foreign exchange trading which refers to the price at which the buyer and seller agree on some stock or security. The bid and ask price is typically given in two values with one price lower and the other price higher than the other. As in the case of a bid and ask price of 10.20 / 10.50, the lower price which is 10.20 is refer to as the bid price and 10.50 represents the ask price. The bid price of 10.20 is basically the amount at which the buyer is willing to pay for a certain stock or security. The ask price of 10.50 is the amount at which the seller is willing to let go of his/her stock. In actual trading, the ask price is typically higher than the bid price.

Whenever there is an agreement to a stock trading transaction, the buyer will have to pay for the higher amount which is the asking price of the seller. In the same way, the seller will only get to collect the lower bid price. In the same example as above, the buyer will need to pay 10.50 for every stock purchased but the seller will not get his/her asking price and instead get the bid price of 10.20 per stock value. The difference of 30 cents in this example is called the bid-ask spread. This amount per stock will then represent the earnings of the stock broker or market maker which facilitated the transaction between buyer and seller.

Bid and ask prices typically fluctuate over a period of time. Some stock prices have fluctuations in terms of bid and ask prices throughout a single day of trading. When markets for trading are said to be in a volatile period, the bid and ask price may go up and down in one trading day. Stock quotations may also get influenced by the limited number of stocks or securities available for trading in a given day.

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References :


[0]http://www.investopedia.com/terms/b/bid-and-asked.asp
[1]http://www.wisegeek.com/what-is-a-bid-ask-spread.htm
[2]http://stocks.about.com/od/tradingbasics/a/bidask101704.htm
[3]http://en.wikipedia.org/wiki/NASDAQ

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Posted by on Sep 25th, 2014 and filed under Business, Finance & Investing. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.