## Bid and Offer in the Stock Market - Fundamental Concepts Every Trader Must Know

In securities trading, the terms **bid** and **offer** are extremely important, but many people are still confused about how these two terms differ. In fact, bid and offer are figures that change every second according to the fluctuations of supply and demand in the real market. When there are many buyers entering the market, both bid and offer will move upward. Conversely, when many sellers are selling, prices will move downward.

### What is a bid? What does the buy price mean?

**Bid** or purchase price is the highest price that a buyer or investor is willing to pay for a security. It indicates the level of demand from buyers for that asset. The more people want to buy, the higher the bid price will be.

When investors want to buy shares, they need to know how much they will have to pay because sellers will not agree to sell below a certain price. Therefore, understanding the bid is crucial in executing transactions. Usually, the bid price is lower than the initial bid set by the seller.

Placing a bid can be done both online and offline through a broker or intermediary who connects buyers and sellers. For example, if an investor wants to sell their shares, they need to find out who is willing to pay what price for those shares.

### What is an offer in the stock market - What is the asking price?

**Offer** is the lowest price that a seller or security holder is willing to accept for selling their asset, representing their willingness to sell. Investors wanting to buy securities must place buy orders at the current price level, and if they want to acquire the asset immediately, they must pay the current offer rate.

For sellers, the offer price reflects the minimum amount they aim to receive from selling the security, indicating supply. If investors want to close the deal quickly, they may have to accept the offer price set by the seller, even if it is slightly above the current market price.

### Using Bid and Offer in Trading - Benefits and Applications

From a general perspective, bid and offer might seem like just numbers tracking trading volume, but in reality, they play a vital role in investors’ trading decisions.

First, bid and offer help indicate at what price a market order to buy or sell will be executed. Although some experts may try to control the price, such manipulation is difficult because market orders tend to close near the current bid-ask levels.

Second, bid and offer assist in managing limit orders and stop-loss orders, which are essential tools for risk management and profit-making in trading. Therefore, a good understanding of the bid-ask spread will make investors more effective traders.

( Advantages of analyzing Bid in trading

Proper management of bid prices offers many benefits. First, the bid helps sellers understand the true value of their holdings. When the bid is high, it indicates that the market values the asset highly.

Second, in a bull market, buyers are willing to pay higher prices because they are confident they can sell at a profit. This increases market liquidity.

Third, analyzing the bid also helps determine the true value of an asset, even if the market sentiment is positive or negative.

) Disadvantages of relying solely on Bid prices

However, relying only on the bid has disadvantages. First, the bid price is always lower than the offer price, indicating a gap between buyers and sellers. Often, sellers are unwilling to sell at the bid price, resulting in uncompleted transactions.

Second, the bid cannot accurately reflect the true value of an asset because of economic changes, investor confidence, and fears of a bear market. Bid prices tend to decrease during downturns.

Third, in the era of electronic trading, millions of transactions occur daily, making direct contact between buyers and sellers impossible. This can lead to market inefficiencies.

( Advantages of using Offer in trading strategies

The offer price is highly useful across almost all markets, including stock markets, bond markets, derivatives, and foreign exchange markets ()forex###).

From a seller’s perspective, the offer describes the minimum amount they are willing to accept. For buyers, the offer indicates how much they need to pay to acquire the asset immediately.

( Disadvantages of Offer prices for new buyers

Generally, the offer price tends to be higher than the current market price, meaning new buyers will have to pay more than they expected, increasing their investment costs.

Additionally, many new investors are unaware of the difference between the offer and the current market price, which can cause confusion when they see their purchase price higher than anticipated.

) How to read and analyze Bid and Offer in real trading

Correctly reading bid and offer is a crucial skill:

**Narrow Bid and Narrow Offer**: This signals a trend but with low trading volume. ###low volume( If continuous buying activity is observed, keep an eye on it because increasing volume can push prices higher.

**Narrow Bid and Wide Offer**: This occurs during ongoing buying with a wide offer, indicating large investors preparing to halt selling. The offer price is likely to rise steadily.

**Wide Bid and Narrow Offer**: Usually occurs at the end of a trend. Continuous buying with a narrow offer signals to pass on. Prices tend to slow down in this phase.

**Wide Bid and Wide Offer**: This is the period of highest trading volume. If it occurs at the start of a trend or during a break of the offer, prices may surge further. But if it happens at the end of a trend, it’s better to avoid.

) Basic differences between Bid and Offer

**Bid** is the highest price a buyer is willing to pay, while **Offer** is the lowest price a seller is willing to accept. The difference between these two prices is called the **Spread** (###spread().

In the stock market, both bid and offer prices change every second according to supply and demand. These fluctuations indicate the market’s liquidity. When demand exceeds supply, both bid and offer move upward. When supply exceeds demand, they move downward.

| **Characteristic** | **Offer Price** | **Bid Price** |
|---|---|---|
| Meaning | Lowest price a seller accepts | Highest price a buyer pays |
| Price level | Usually higher than bid | Usually lower than offer |
| Indicates | Supply )supply### | Demand ###demand( |

) Example of using Bid and Offer in real markets

Masan is a novice investor wanting to buy shares of Asset A. He notices the latest trading price is $173 per share. He decides to buy 10 shares.

He thinks he will pay a total of $1,730 ###173 × 10(, but after completing the transaction, he finds he paid $1,731, which confuses him.

Later, he realizes that the $173 he saw is the last traded price, not the current bid or offer. The actual current offer price is $173.10 per share. Therefore, the amount paid is $1,731 )173.10 × 10(. This clarifies that the current market price and the bid-ask prices are different.

) Movement of Bid and Offer when demand increases

In a booming stock market, when many buyers enter, both bid and offer will continuously move upward. Sellers will keep their offer at high levels because they believe the stock should be more expensive. The bid will also rise accordingly.

In a bear market, the situation reverses. Buyers will lower their bid prices out of fear that prices will fall further. Sellers will try to sell at lower offer prices to get cash quickly.

( The importance of Spread in trading

Spread is the difference between bid and offer, which brokers or intermediaries earn. A high spread indicates a large gap between the two prices, making it harder to profit.

For highly liquid assets like large-cap stocks, the spread is very narrow or almost negligible. For less liquid assets like small-cap stocks, the spread can be a significant percentage of the price.

Bid and offer prices are determined by individual and institutional trading decisions and overall market movements.

) Summary

**Bid and offer** are essential concepts that should not be overlooked, especially when trading assets with low liquidity. Understanding how bid and offer move helps investors make better decisions.

Some assets, like large-cap stocks, have very narrow bid-ask spreads, while others may have spreads that are a larger percentage of the price.

Investing in the stock market has proven to be an effective tool for generating good returns. To achieve short-term and long-term financial goals, it is necessary to spend time studying and mastering bid-ask spread strategies thoroughly.