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Bid and Ask

In financial markets, the terms "bid" and "ask" refer to the prices at which buyers and sellers are willing to buy and sell a particular asset, such as a stock, bond, or fund.

What You Need To Know

The bid price represents the highest price a buyer is willing to pay for the asset. Buyers place bids to express their interest in acquiring the asset at a specific price. The ask price, on the other hand, represents the lowest price a seller is willing to accept for the asset. Sellers set the ask price to indicate the minimum price they are willing to receive for the asset.

The difference between the bid and ask prices is known as the bid-ask spread. This spread represents the transaction cost and the profit margin for market makers or intermediaries facilitating the trades. A narrower bid-ask spread usually indicates higher liquidity in the market, meaning the asset can be bought or sold more easily with less impact on the price. Conversely, a wider spread may suggest lower liquidity and may lead to higher transaction costs for buyers and sellers.

Traders and investors use bid and ask prices to determine the best prices to execute their trades. If a trader wants to buy an asset, they will typically pay the ask price. If a trader wants to sell an asset, they will typically accept the bid price.