Bid and Ask

In the stock market, the bid is the highest price a buyer is willing to pay for a share of a stock, while the ask is the lowest price a seller is willing to accept for that same stock. The bid-ask spread is the difference between these two prices, and it represents the profit margin for market makers and the transaction cost for investors. When you buy a stock, you pay the ask price, and when you sell a stock, you receive the bid price.

Bid Price

• Definition: The highest price a buyer is currently willing to pay for a specific security, such as a stock or bond. 
Action: When you want to sell a stock, you will receive the current bid price. 

Ask Price

Definition: The lowest price at which a seller is willing to sell a specific security at that moment. 
Action: When you want to buy a stock, you will pay the current ask price. 

Bid-Ask Spread 

Definition:

The gap or difference between the highest bid price and the lowest ask price for a given asset. 
Purpose:
This spread is essentially the market-maker's profit margin for facilitating trades. 
Indicator:
A narrow bid-ask spread often indicates high liquidity and low volatility, suggesting that buyers and sellers have a strong agreement on the asset's fair value. Conversely, a wide spread can indicate higher volatility or lower liquidity. 

How They Work Together

1. Buyer and Seller Meet:
Trades occur when a buyer is willing to pay the ask price and a seller is willing to accept the bid price. 
2. Market Orders:
If you place a market order to buy a stock, your order will be filled at the current ask price. If you place a market order to sell, it will be filled at the current bid price. 
3. Example:
If a stock's bid price is $10.00 and its ask price is $10.05, the bid-ask spread is $0.05. A buyer would pay $10.05, and a seller would receive $10.00.








AI Overview



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In stock trading, the bid is the highest price a buyer is willing to pay for a security, while the ask (or offer) is the lowest price a seller is willing to accept for it. The difference between the bid and the ask price is called the bid-ask spread. Buyers typically purchase at the ask price, and sellers sell at the bid price, with market makers earning the spread for facilitating the trade. 
Bid Price 
• What it is: The highest price that a buyer is currently prepared to pay for a given stock. 
• What it represents: It indicates the current demand for the stock. 
Ask Price
• What it is: The lowest price at which a seller is willing to sell a stock at a given moment. 
• What it represents: It reflects the current supply of the stock. 
Bid-Ask Spread 
• Definition: 

  The gap between the bid price and the ask price. 
• Significance: 

  It is an indicator of a security's liquidity; a tighter spread means the stock is more liquid, while a wide spread suggests lower liquidity. 
• Transaction cost: 

  The spread is essentially the transaction cost for retail traders and the commission earned by market makers who facilitate the trade. 
• Example: 

  If a stock's bid is $10.00 and the ask is $10.05, the spread is $0.05. A buyer would pay $10.05, and a seller would receive $10.00.