Bid, Ask & Spread Definitions

I often heard the following question:

How is it possible that the price of the Bid is higher than the price of Ask and no trade takes place ?

The answer seems obvious to me, but as I was asked that questions so many times:, here is the answer:

Bid means Bid Price thus represents the Demand, not the offer.

The Bid Price is the price at which a security or an asset can be sold on the market. As an obvious consequence:

Ask means Ask Price thus represents the Offer, not the demand.

The Ask Price is the price at which a security or an asset can be purchased on the market.

The Spread is the difference between the bid and the ask price of a security or of an asset. For example, on a securities market, if the ask price of a stock is 63 and the bid price is 61 then the spread is 2.

The spread is a measure of market liquidity generally expressed in a currency or fraction of currency, but not always i.e. interest rates.

The closer the spread is to zero, the easier the transactions are.

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp

More Articles