What is a bid and ask?

The term "bid and ask" (also known as "bid and offer") refers to a two-way price quotation that indicates the best potential price at which a security can be sold and bought at a given point in time. The bid price represents the maximum price that a buyer is willing to pay for a share of stock or other security.

What is a bid price?

The bid price is the price that an investor is willing to pay for the security. For example, if an investor wanted to sell a stock, he or she would need to determine how much someone is willing to pay for it. This can be done by looking at the bid price. It represents the highest price that someone is willing to pay for the stock.

What determines the spread between bid and ask prices?

The spread between the bid and ask prices is determined by the overall level of trading activity in the security, with higher activity leading to narrow bid-ask spreads and vice versa. Most quotes in securities markets are two-sided, meaning they come with both a bid and an ask.

Why do market makers quote both bid and ask prices?

To maintain effectively functioning markets, firms called market makers quote both bid and ask prices when no orders are crossing the spread. The difference between the bid price and the ask price is called the spread. A high spread indicates that a stock has low liquidity.