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Difference Between Bid and Ask Stock

The security and stock markets function like an auction whereby corporations, governments or individuals buy and trade securities. This however operated differently from most consumer products as the prices are set by both the seller and the buyer. While bid represents the demand, ask represents the supply. It is important to get accustomed to these terms before attempting to trade in any market. 

What is a Bid stock?

This is the highest price that a buyer is willing to pay for security such as an option, a bond, stock or other financial instruments. 

For instance, if the current stock for company XYZ is quoted as $9/ $9.50, the investor will purchase the stock at $9.50 while the investor willing to sell will receive $9. The difference, referred to as the bid-ask spread will benefit the market maker. By quoting the stock at $9/ $9.50, the market maker expresses his willingness to buy XYZ stock $ 9, which is the bid price. 

What is an Ask stock?

This is the least amount that a seller is willing to take in exchange for a stock or other traded security. 

In the above example whereby the current stock for company XYZ is quoted as $9/ $9.50, the market maker expresses his willingness to sell the stock at $9.50, which is the ask price. The difference benefits the market maker, usually the specialist handling the transaction or the broker. 

Similarities between Bid and Ask stock

  • Both rates are not constant
  • Both determine the liquidity rate of an asset or security

Differences between Bid and Ask stock

Definition

Bid stock refers to the highest price that a buyer is willing to pay for security such as an option, a bond, stock or other financial instruments. On the other hand, ask stock refers to the least amount that a seller is willing to take in exchange for a stock or other traded security.

Value

While the bid price is always lower than the ask price, the ask price is always higher than the bid rate. 

Users

Bid stock is used by sellers while ask stock is used by buyers. 

Bid vs. Ask stock: Comparison Table

Summary of Bid and Ask stock

Bid stock refers to the highest price that a buyer is willing to pay for security such as an option, a bond, stock or other financial instruments. On the other hand, ask stock refers to the least amount that a seller is willing to take in exchange for a stock or other traded security. The difference between the bid and ask stock is the bid-ask spread which benefits the market maker, usually the specialist handling the transaction or the broker. Both, however, are not constant and are used to determine the liquidity rate of an asset or security. 


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References :


[0]Houston J & Brigham E. Fundamentals of Financial Management, Concise Edition. Cengage Learning Publishers, 2012. https://books.google.co.ke/books?id=9P9u4IDBKyQC&pg=PA41&dq=Difference+between+Bid+and+Ask+stock&hl=en&sa=X&ved=2ahUKEwjv5aCB6KzqAhVVilwKHalzBrAQ6AEwAXoECAkQAg#v=onepage&q=Difference%20between%20Bid%20and%20Ask%20stock&f=false

[1]Gennady Favel. The Stock Market Philosopher: Insights of a Soviet-born, New York-bred Hedge Fund Trader. Traders Press, 2008. https://books.google.co.ke/books?id=C2zCZRvektwC&pg=PP92&dq=Difference+between+Bid+and+Ask+stock&hl=en&sa=X&ved=2ahUKEwjv5aCB6KzqAhVVilwKHalzBrAQ6AEwAnoECAEQAg#v=onepage&q=Difference%20between%20Bid%20and%20Ask%20stock&f=false

[2]Michael Taillard. Corporate Finance For Dummies. John Wiley & Sons Publishers, 2012. https://books.google.co.ke/books?id=ci1EVsyHspIC&pg=PA155&dq=Difference+between+Bid+and+Ask+stock&hl=en&sa=X&ved=2ahUKEwjv5aCB6KzqAhVVilwKHalzBrAQ6AEwCHoECAgQAg#v=onepage&q=Difference%20between%20Bid%20and%20Ask%20stock&f=false

[3]Image credit: https://www.picpedia.org/chalkboard/images/bid.jpg

[4]Image credit: https://live.staticflickr.com/5138/5398324326_68a853c25f_b.jpg

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