How do the bid and ask prices work with investing?
When you invest, you automatically have to deal with the bid and ask prices of investment products. Are you a novice investor who has never experienced this before? Then it is not surprising that you do not know what bid and ask prices are. We therefore devote an article to this subject especially for the novice investor.
On this page you can read not only what the bid price of an investment product is, but also what the ask price is. You can also read on this page exactly how bid and ask prices work when investing. With the information in this article, you can start investing in the right way.
What is the bid price?
The bid price of an investment product is the maximum price at which a buyer is willing to purchase the investment product in question. If 10 pounds is bid on a share by buyer X, 10 pounds is the bid price of this buyer. If buyer Y bids 11 pounds for the share, 11 pounds is the bid price of this buyer.
What is the ask price?
The ask price is also called the offer price. This is the price for which a specific investment product is offered for sale. This can be a share, a security or a bond. If the seller requests 12 pounds for a specific investment product, this is the ask price of this seller.
Carrying out a transaction
If a buyer wants to pay the ask price or offer price for an investment product, a transaction will be made. In this case, the buyer pays the ask price that the seller has set for the specific investment product.
If the seller accepts a different bid price for what he wants to sell, a transaction will also be concluded. This bid price may be lower than the ask price. This means that the buyer is more profitable, but the seller earns less on the specific investment product he sells. The seller determines whether or not he agrees with a lower bid price.
It may be that the sellers agree, but it is also possible that the sellers do not agree. This depends, among other things, on the popularity of the investment product concerned and the current situation on the investment market. At a market attractive to the seller, he will not sell his product quickly below the asking price. If the market is less attractive to the seller, this will happen sooner.
The difference between the bid and ask price
In the investment world, the difference between the bid price and the asking price is also called the spread. The spread may relate to a stock, but also to an option, a turbo or a bond. All investment products that are offered for a certain ask price and where a certain bid price is offered by a buyer have a spread.
It is interesting for investors to keep the spread, or the difference between the bid price and the ask price of an investment product, as small as possible. If you want to invest in an investment product, you always see what the spread of this investment product is. It is important to invest in a product with the lowest possible spread.