Bid and Ask
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Bid and ask are the two basic sides of a market quote. The bid is the highest displayed price at which buyers are currently willing to buy under the quoted conditions. The ask is the lowest displayed price at which sellers are currently willing to sell under the quoted conditions.
The difference between the bid and ask is the spread. A narrower spread generally means a lower immediate transaction cost, all else equal.
Example
If a stock is quoted at 99.90 bid and 100.00 ask, the spread is 0.10. A marketable buy order would generally interact with the ask, while a marketable sell order would generally interact with the bid.
Quotes can change rapidly, especially in volatile or illiquid markets. Therefore, the displayed bid and ask are not permanent prices.
Key Terms
Bid, ask, spread, quote, liquidity, execution.
Knowledge Check
- What is the bid?
- What is the ask?
- How is the spread calculated?