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 the 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 the case of 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 the Bid. In the future, when the prices fall, the buyer is now a seller. He will now quote a price that 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 are bidding for an amount that is higher; however, the same will not likely be applicable in case of ask.
- On the purchase side, prices will always be in descending order, and the bid which is topmost will be considered as the best bid, and on the contrary side (sell), prices are arranged in the ascending order, and the topmost ask will be taken as the best ask. The average of best ask and an average of the best bid price will be taken as the ideal price of that security.
- The bid-ask spread can only be in positive when the Bid price is smaller than the asking 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
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| Basis Of Comparison |
Bid Price |
Ask Price |
| Basic Definition | The bid price is the maximum price that the buyer is willing to pay for the stock or the security price. | The ask price is the minimum price that the seller is willing to sell the stock or the security price. |
| Range-Bound | This rate will be usually higher than the market price of the stock. | The ask price will be usually below than the market price of the stock. |
| Which Rate is higher? | The bid rate is always the left one quote and is less than the ask price. | Ask price is higher than bid price and is on the right side of the quote. |
| What does it represent? | These will be the highest bids currently, and there would be in line with lower bids as well. | These are the highest asks currently, and there would be higher bids in a queue as well. |
| Users | Sellers of the stock will use the bid price. | Buyers of the stock price will use the ask price. |
| Broker perspective | Bid price is the selling price for them, and hence they try to extract the maximum from the buyers. | Ask price is the price at which the brokers purchase the stock, and hence they try to lower the price from their side. |
| Convention: | Say bid price $16 x 130, that means the potential buyers will be bidding at $16 for up to 130 shares. | Ask price $28 x 109 would mean that there are potential sellers willing to sell at that price to 109 shares. |
Conclusion
Bid-ask spreads can vary widely, depending on the stock or security and the market. Blue-chip companies that 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 50 cents or more.
The bid-ask spread can widen dramatically during 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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