Definition
The term bid price is used to describe the price at which an investor is willing to buy a security. The bid price is the converse of the ask price, which is the price an investor is willing to receive when selling a security.
Explanation
Bid and ask prices are of prime importance to the equities market as well as other financial instruments, since they tell investors the prices at which an investor is willing to buy or sell a security. These two values are always quoted as a pair, with the bid price always being the lower value. The difference between these two values is known as the bid /ask spread.
When an investor places a market order for a security, they are telling their broker to make the purchase at the best available price. In order to provide the investor with a near instantaneous purchase, the price paid for the security will be the ask price.
Alternatively, the investor may specify a price at which they are willing to purchase the security. For example, the investor might place a limit order with their broker, which will be a price below the current market price of the security. If the price of the security were to decline, and the market's bid price for the security is at, or lower than, the investor's bid price, then the transaction can be executed.
Related Terms
The term ask price is used to describe the price at which an investor is willing to sell a security. The ask price is the converse of the bid price, which is the price an investor is willing to pay when buying a security.
Moneyzine EditorJanuary 5th, 2024- The term non-equity option refers to an option that has an underlying asset which is not a common stock. Non-equity options usually refer to options with underlying assets such as commodities and market indexes.Moneyzine EditorSeptember 20th, 2023
The term margin call refers to a demand for additional assets to ensure the minimum level of assets is available to support an investment position. A margin call can occur when an investor buys securities using borrowed funds.Moneyzine EditorJanuary 24th, 2024
The term market maker refers to a member of an exchange that buys and sells options or stock for their own account. Market makers also have the responsibility of maintaining a fair market in the commodity or securities in which they specialize.Moneyzine EditorJanuary 24th, 2024
