Bid and Ask Price

Learn the difference between the bid and ask price

Introduction Articles

What are Options?
1 year(s) ago
15 minutes Read
Call Options
1 year(s) ago
20 minutes Read
Put Options
1 year(s) ago
8 minutes Read
Strike Price
1 year(s) ago
15 minutes Read
Options Pricing
1 year(s) ago
12 minutes Read
Bid and Ask Price
1 year(s) ago
6 minutes Read
Hedging with Options
1 year(s) ago
12 minutes Read
Covered Calls
1 year(s) ago
6 minutes Read
Protective Put
1 year(s) ago
7 minutes Read
Options Assignment
1 year(s) ago
16 minutes Read

Bid and Ask Price Explained

You may be asking yourself what does Bid and Ask price mean, or why is the Bid and Ask price so different?

The bid and ask price refers to the two way quote given on all exchanges, and are normally the best potential prices to trade at. The market is made up of many different participants but at its simplest, the highest bid (a price at which you can sell) and the lowest offer (the price at which you can buy) determine the current bid and ask (or ‘offer’).

The difference between the bid and ask prices is commonly known as the Spread. It is normally a good sign of liquidity in that product if the spread is low (sometimes also referred to as ‘narrow’ or ‘tight’). 

It is easy to get the bid and ask price confused due to the way they are named, but once you understand a few basic terms it should become clear.

A chart displaying the various bid and ask prices for options.

 

Bid Price

The bid price is the highest price for which somebody (other market participants or market makers) is willing to bid you (to buy something). As a trader, you will look at the bid price when you SELL a product. 

Ask Price 

The ask price (also known as the offer) is the lowest price for which somebody is willing to sell something to you, hence it is the lowest price they ‘ask’ you to pay or ‘offer’ the product to you. So, as a trader, you will look at the ask price as the price you pay to BUY a product. 

In addition to the bid and ask price, you will see the volumes of each bid and ask price available for most products. This shows how much quantity of the product is available at the price being shown. These are more commonly referred to as the “Bid Size” & “Ask Size”.

Important information: Derivative products are considerably higher risk and more complex than more conventional investments, come with a high risk of losing money rapidly due to leverage and are not, therefore, suitable for everyone. Our website offers information about trading in derivative products, but not personal advice. If you’re not sure whether trading in derivative products is right for you, you should contact an independent financial adviser. For more information, please read our Important Derivative Product Trading Notes.

Hide
Important Notice - Show