Bid Price vs Ask Price

Difference Between Bid Price vs Ask Price

The most widely used term while buying securities in the market is bid price vs ask price. The bid-ask spread does represent the basic transaction cost that will be applied for acquiring an investment in the market. The bid-ask spread, along with other fees or commissions, will represent the basic transaction cost of trading that security. The bid price is the highest price that the buyers are willing to pay for them while the ask price is the lowest price at which the sellers are willing to sell a security or other investment asset. And the difference between the bid price vs ask price is called as the spread. For example, if the bid price on security is $100 and the ask price is $101, then the spread will be $1

Take an example below of Reliance industries where we show top 5 bid price vs ask price

The average investor will contend with the ask and bid spread as an implied cost of trading. For example, if the current price quotation for Reliance Industries is 1,077.65 / 1078.30, investor A, who is looking to purchase Reliance at the current market price, would pay 1078.30, while investor B who on other hand wishes to sell Reliance at the current market price would receive 1077.65.

Head To Head Comparison Between Bid Price vs Ask Price (Infographics)

Below is the top 7 difference between Bid Price vs Ask Price

Key Differences Between Bid Price vs Ask Price

Both Bid Price vs Ask Price are popular choices in the market; let us discuss some of the major Difference Between Bid Price vs Ask Price

• In case of a security, if it is expected that the stock price will rise, then the buyer would purchase the security at a price that he considers fair. The price at which the buyer is willing to purchase the stock is called as the Bid. In future when the prices fall, the buyer is now a seller. He will now quote a price which he considers selling in which he can make maximize his profit that price is known as the Ask.
• Mostly, the bid price is usually quoted as low and will also be structured in such a way that the desired outcome will be achieved. Since the seller will never sell the security at a smaller rate the ask price has to be always higher. For e.g., if the ask price of a security is $4,000 and a buyer is willing to purchase it for $3,000, then he will quote an amount of $1,000. This might appear like a compromise and both the parties will try to find a mid-path and will agree at a price where they wanted to be.
• Bid Price is known as sellers’ rate the reason being if anyone is selling the security then he should get the bid price. If on the opposite side you are purchasing the security, then you should get the Ask Price. The difference between these two prices will go to the specialist or the broker that handles the transaction
• There can be a case that several buyers that are bidding for an amount which is higher, however, the same will not likely be applicable in case of ask.
• On the purchase side, prices will always be in the descending order and the bid which is topmost will be considered as the best bid and on contrary side (sell), prices are arranged in the ascending order and the topmost ask will be taken as the best ask. Average of best ask and an average of the best bid price will be taken as the most ideal price of that security
• The bid-ask spread can only be in positive when the Bid price is smaller than the ask price. A spread that is higher will indicate the difference which is wide between the 2 prices that could be due to a lack of liquidity. This could also make it difficult at times to generate a profit as the security will always be bought at a higher price and will be sold at a lower price.

Bid Price vs Ask Price Comparison Table

Below is the 7 topmost comparison between Bid Price vs Ask Price

Conclusion –

Bid-ask spreads can vary widely, depending on the stock or security and the market. Blue-chip companies which constitute the Dow Jones Industrial Average may have a bid-ask spread say of only a few cents, while a small-cap stock may have a bid-ask spread as high as of 50 cents or more.

The bid-ask spread can widen dramatically during the periods of market turmoil or illiquidity, since traders will not be willing to buy at a price beyond a certain threshold, and sellers also are not willing to accept prices below a certain level.

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