Bid and Ask for stock trading and other applications
In stock trading, the terms "bid" and "ask" are used to indicate the price at which one is willing to buy or sell an asset.
The bid price represents the highest purchase price of an asset, and the ask price represents the lowest sale price of an asset.
In simpler terms, we can say the following about these prices:
Ask is the price of selling you currency, shares, gold or other goods, higher
Bid is how much you will get if you want to sell something, lower
These indicators are indicated in the quote table - https://time-forex.com/kotirovki , quotes are located in the trading platform or on specialized websites.
The difference between ask and bid is called a spread, often a commission for the organization intermediating the transaction:
For example, in our picture, you can buy a euro for a US dollar at a price of 1.12253, and sell 1.12250 dollars for a euro, that is, the intermediary commission spread is 1.12253-1.12250 = 3 points for a five-digit quote.
The spread may vary depending on the liquidity of the asset. The liquidity of an asset is its ability to quickly and easily be sold at a market price; the more liquid the asset, the lower the spread will be.
This is because if there are more participants in the market willing to buy and sell an asset, this will make prices more stable.
The size of the spread is quite strongly influenced by such indicators as supply and demand; when there is a shortage of an asset, the spread begins to grow and the difference between ask and bid increases.
This is clearly seen in the example of currency exchange, when the national currency collapses against the US dollar, at this moment the number of buyers is many times greater than the number of people willing to sell the dollar, and the difference between the bid and ask reaches ten percent:
The terms "bid" and "ask" are used in all markets where assets are traded, including stock markets, foreign exchange markets and derivatives markets.
These concepts are important tools for understanding pricing and making buying or selling decisions.
Where are the terms bid and ask used in practice?
Stock market: Stock brokers use these terms to refer to the prices of stocks, bonds, and other securities.
Foreign exchange market: currency quotes can be found not only on the foreign exchange exchange, but also in everyday life, bank exchange offices or brokers engaged in transactions with currencies.
Derivatives Market: Derivatives are financial instruments that derive their value from another asset. For example, stock futures contracts give traders the right to buy or sell shares at a specific price in the future.
A trader who buys a stock futures contract is actually entering into a deal with the seller of the futures contract to buy or sell the stock at a specific price in the future.
Depending on the direction of the trade, the price at which the trader receives the futures contract will be called the bid or ask price.