Bid vs Ask
The terms ‘bid’ and ‘ask’ are known as the 2-way price quotations indicating the best price at which the stocks can be sold or bought at a given point in time. The major difference between the bid and ask prices determines the liquidity of the asset. There will be better liquidity levels for the smaller spread of the values. The present stock pricing is the last traded price of the share. During the market hours, the price keeps on changing. Bid and ask are the best potential prices for the transaction of the buyers and sellers. You can think of the bid and ask prices as the tip of iceberg prices.
Taking an example, the bid of ‘1.20 X 1000’ indicates that the potential buyers are bidding at the price of $1.20 for up to 1000 shares. The bids are the highest bids at present and there are lower ones in the line for the stock numbers beyond the described number of shares. If you order to sell more than 1000 stocks in the above case, the other part of your order will be filled at a relatively lower price.
The similar example about ‘Ask: 1.30 x 2000’ gives an indication that there are potential sellers for the stock asking for $1.30 for up to 2000 shares. There are others behind in the line with the higher asking prices. If you enter a market and buy more than 2000 shares, the other part of the order will be filled at a higher price.
A transaction can occur when the potential buyer is willing to pay the asked price or the potential seller wants to accept the bid price. There might be an option to meet in the middle if the buyers and sellers get change in orders. T
For the stocks easy for the stock analysts to turn around and buy/sell to someone else, the spread is quite narrow. The tough stocks to deal with have a higher spread in the market, so as to potentially get the stock inside the inventory for a particular phase. This could be risky if the investor moves in the wrong direction.
The bid-ask spread works to the benefit of the market maker and represents the profit. These spreads can vary as per the market trends and security issues. The small-cap stocks have the bid-ask spread of a few cents and it will widen during the market turmoil or illiquidity phases. You can become a great trader if you’re ready to enter the real market and have practiced your skills in the virtual phase.
Some Important terms:
Bid: It is an offering made by the investor or trader to purchase the security having price stipulation with the quantity desired by the buyer to purchase.
Bid Price: It is the price a buyer is interested to pay off to get stock or security.
Quotation: It is the highest bid paid to price for the security or commodity. It is even the lowest ask price available for the respective asset.
Touchline: It is the maximum price that the buyer of a stock is willing to pay and the lowest price for which the seller wants to sell.