Bid vs Ask Price: What’s the Difference?

The bid and ask prices represent the current buying and selling interest for an asset.

The bid price is generally the highest price a buyer is willing to pay.

The ask price is generally the lowest price a seller is willing to accept.

The difference between them is known as the bid-ask spread.

What is the bid price?

The bid price represents the highest current buying offer in an order book.

A user who submits a market sell order may interact with available bid prices, subject to order size and market liquidity.

Several buyers may submit different bid prices and quantities.

What is the ask price?

The ask price represents the lowest current selling offer in an order book.

A user who submits a market buy order may interact with available ask prices.

Several sellers may offer different quantities at different prices.

Why are the bid and ask prices different?

Buyers generally want to pay less, while sellers generally want to receive more.

Until both sides agree on a price, a gap may remain between the highest bid and lowest ask.

This gap is the spread.

What happens when a market order is placed?

A market buy order generally interacts with the lowest available ask prices.

A market sell order generally interacts with the highest available bid prices.

If the order is larger than the amount available at the best price, it may continue through additional price levels.

This may affect the average execution price.

What happens when a limit order is placed?

A limit order allows the user to select a specific price.

A buy limit order may be added to the bid side of the order book.

A sell limit order may be added to the ask side.

The order may remain open until another participant is willing to trade at that price, or until it is cancelled or expires where applicable.

What affects bid and ask prices?

Bid and ask prices may change because of:

Supply and demand
Market news
Liquidity
Volatility
Large orders
Broader market movements

Prices may update rapidly in active markets.

Example

An asset has:

Highest bid: S$199
Lowest ask: S$201

A seller using a market order may sell near S$199.

A buyer using a market order may buy near S$201.

The S$2 difference is the bid-ask spread.

In summary

The bid price is the highest available buying offer, while the ask price is the lowest available selling offer.

Understanding bid and ask prices can help users interpret order books, spreads and possible execution prices.

Users should review transaction details carefully before placing an order.

Quick Answers

Is the ask price always higher than the bid?

In a normal order book, the lowest ask is generally higher than the highest bid until a trade occurs.

Which price do buyers pay?

A market buyer generally interacts with available ask prices.

Which price do sellers receive?

A market seller generally interacts with available bid prices.

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All opinions expressed here by Coinhako.com are intended for educational purposes, taken from the research and experiences of the writers of the platform, and should not be taken as investment or financial advice.