Share Market being the most popular place for earning passive or direct income, for the traders or investors there are different terminology and understandings that are required to know for the beginner or the expert level of the trader or investor. One of the factors is to understand how to bid price and offer price works in the share market.
Let us walk through the description about What is Offer Price and Bid Price in Share Market?
What is Bid Price?
Bid price means the price that the buyer is ready to pay for a share of that particular stock. This is the highest price for a buyer to pay in order to buy that particular stock.
What is Offer Price?
The offer price is the price at which the seller is ready to sell its particular share of that stock. This is the lowest price for the seller to get in order to sell that particular stock. Generally offer price is termed as ask price.
The difference between the bid and ask price is known as the bid-ask spread. When both the buyer and the seller agree on some particular price then only the transaction happens between them. The difference between the spread is an indicator of the liquidity of the asset.
In the below table we will be presenting an example of XYZ Ltd company and their quantity and bid and ask price for that.
|Bid Quantity||Bid Price (in Rs)||Offer Quantity||Offer price (in Rs)|
Suppose, this is a highly liquid stock and have a spread that is quite narrow and this would not be the case if it was thinly traded securities or are illiquid counters. So, if an investor wants to buy 1000 shares then he can buy at the market rate that is at the offer rate of Rs 2500 and if an investor wants to sell its 1000 share in the market then he will sell it at the bid price of Rs 2500.75.
The bid-offer spread for this transaction will be (2500.75 – 2500) = 0.75 Rs. It should be taken in point that the best rate and best offer rate are only used at any point in time to determine the Bid-offer spread.
Difference between Bid and Offer Price
|Meaning||Bid refers to the maximum price that the buyer of the stock willing to pay.||Offer refers to the lowest price at which the seller of the stock accept at that price.|
|Trading Difference||If you want to sell the stock, then the broker will set a lower price than the offer price.||If you want to buy the stock, then the broker will set a higher price than that the offer price.|
|Demand/Supply||The bid represents the demand of the stock. Higher the demand for the stock, the higher the bid price will be.||The offer represents the supply of the stock. Higher the supply for the stock, lower will be the offer price.|
|Pricing Difference||Bid price is lower price than the offer price.||The offer price is always the higher price than bid.|
|Seller and Buyer Price||Bid price is the seller’s price which means that the sellers want to sell the stocks quickly and will have accepted the bid rate.||The offer price is the buyer’s price which means that the buyers want to buy the stock quickly and will have to accept the offer price.|
|Limitations||There are no limitations for setting the bid price.||The offer price is based on the current market price and quality of the product hence there is certain limitations.|
It is an important part to know about the bid price and offer price in order to get some profits from the trades. Bidder is an important part of an auction. He/she should work on the risk management part and should set the bid price with carefully that both the buyer and seller of the stocks will get profit from the deal.
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Through this blog, you will come across the basic part for the bid and offer price and how it works in the share market. There is also differences explained in the blog and the factors that are different in bid and offer price. Trading Fuel is the blog site in which we are providing the content on the various topics of the stock market that are easy to understand for the reader. For any doubts in the blog or any suggestions, you can directly contact us through e-mails.