What Is a Bid?
A bid is an offer made by a buyer to purchase an asset at a specified price and quantity. It represents the highest price a buyer is willing to pay at a given time.
Definition
A bid is an offer to buy an asset, security, or service at a stated price. In financial markets, it reflects the price a buyer is willing to pay for a security.
In quoted markets, the bid is always paired with an ask price, which represents the price at which a seller is willing to sell.
How It Works
Buyers submit bids indicating both the price and quantity they are willing to purchase. In securities markets, bids are displayed alongside asks and updated continuously as market conditions change.
The highest active bid represents the strongest current buying interest. Transactions occur when a bid matches a seller’s ask.
Why the Term Matters
The bid is a core component of price discovery in markets. It helps explain demand, liquidity, and how transaction prices are formed.
Understanding bids provides insight into market depth and the cost of entering or exiting a position.
Related Concepts
- Ask
- Bid-ask spread
- Market maker
- Liquidity
- Order book
- Demand
FAQs
What is a bid?
A bid is an offer by a buyer to purchase an asset at a specified price.
What does the bid price represent?
The bid price represents the highest price a buyer is willing to pay for an asset.
How is a bid different from an ask?
A bid reflects buying interest, while an ask reflects selling interest.
What is the bid-ask spread?
The bid-ask spread is the difference between the bid price and the ask price.
Who places bids in financial markets?
Bids are placed by buyers, including individual investors, institutions, and market makers.
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