In a stock quote, the bid is the highest price someone will pay for a share. The ask is the lowest price at which someone will sell a share. Bid and ask prices result from the supply and demand for a stock. The difference between the prices is called the spread.

How Stocks Are Priced

The mechanics of a stock trade depends on the type of order placed. Brokers commonly submit an offer to a 澳洲幸运5官方开奖结果体彩网:stock exchange. Each offer includes the number of shares requested and a proposed purchase price. The highest suggested purchase price is the bid and represents the demand s𒐪ide of the market for a given stock.

Similarly, each offer to sell includes a quantity offered and a proposed sale price. The lowest suggested selling price is called the ask and represents the market's supply side for a given stock. An order to buy or sell is filled when an ask matches a bid.

If no orders bridge the bid-ask spread, no trades between brokers occur. To maintain the functioning of the market, firms called 澳洲幸运5官方开奖结果体彩网:market makers quote both bid and ask prices.

Example

Company ABC has a best bid of 100 shares at $9.95 and a best ask of 200 shares at $10.05. A trade does not occur unless a buyer meets the ask or a seller meets the bid. Suppose an investor places a market order to buy 100 shares of Compan🉐y ABC, instructing the broker to buy the stock at the best ava꧋ilable price.

The bid price would become $﷽10.05, and the shares would be traded unt✨il the order is filled. Once these 100 shares trade, the bid would revert to the next highest bid order, which is $9.95 in this example.

The Role of Market Makers

Market makers are typically large firms that help keep markets liquid by promoting trades for investors. Market makers commit to providing continuous, up-to-date bid prices and ask prices, also specifying the volume or amount of shares they're willing to trade.

When market makers receive a buy order from an investor, they sell the investor the requested number of shares from their inventory. The reverse happens when an investor places an order to sell shares—the market maker purchases the shares and adds them to its position.

Market makers ensure there is enough volume available to satisfy the demand of investors who want to buy an asset, and they also help secure the ability of those who want to 澳洲幸运5官方开奖结果体彩网:exit a position to sell their shares. Market makers generate profits by capitalizing on the bid-ask spread. That's because they can sell shares at the higher ask price and buy them at the lower bid price, profiting from the difference.

When Do Trades Occur?

For a transaction to happen, the buyer or seller must bridge the spread between the bid and ask prices. The trade will occur only if a buyer agrees to pay the best available ask price📖 or if a seller accepts the best available bid price.

In the example of ABC Corporation, if a seller wants to unload their position at $10.05 per share (ask price) but the would-be buyer holds the offer steady at✃ $9.95 (bid price), the transaction will not take place until one of the parties agrees to make the trade on the other side of the 10-cent bid-ask spread.

This explains why a higher bid-ask spread means there's lower liquidity or ease of trading a stock. The greater the spread, the less likely it'll be that buyers and sellers will settle on a price they both find agreeable.

The Bottom Line

The "bid" price represents the highest amount a buyer is willing to pay for a stock, while the "ask" price describes the lowest level at which a seller is willing to sell their shares. The difference between the two prices, known as the bid-ask spread, signals the stock's liquidity. Market makers provide quotes for bid and ask prices, facilitating transactions even when traders are unwilling to cross the spread.