What is Ask/Bid in Trading?

The cryptocurrency market is full of many concepts that you must know in order to understand how to read and act accordingly within it, Ask and Bid being two basic concepts in that sense. But what are these two concepts? what is its importance? That and more you will know below.

What is Ask and Bid Price

Chen we talk about Ask or Ask Price, we talk about the sale price of an asset within a market. Thus, the Ask is the minimum price at which an individual would be willing to sell his asset, or the minimum amount he wants to receive in exchange for the unit he is selling.

For its part, when we talk about Bid or Bid Price we are talking about the purchase price or the highest price that a certain buyer is willing to pay for an asset. In the context of financial markets, it is the value that buyers offer for an asset, such as a commodity, security, or cryptocurrency.

The easiest way to see these prices on an exchange is to look at the exchange's order book, in which the highest bid price and lowest ask price are filled first when a trader uses a market order, meaning that a sell market order will match the highest bid, and a buy market order the lowest ask price.

The difference between the two prices is known as the Ask-Bid Spread or Spread. This is one of the market concepts that every trader should know. This difference will be less when we are in a liquid market. This is because the purchase and sale of the asset will be more dynamic and the liquidity to complete operations will be greater. On the contrary, the spread will be higher, when the market is less liquid to the point where it is practically impossible to buy-sell the asset freely.

In any case, remember that this differential or spread responds to the following key points:

1. The bid-ask spread is the difference between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to accept.
2. The spread is the cost of the transaction. Price takers buy at the ask price and sell at the ask price. But the market maker buys at the bid price and sells at the ask price.
3. Supply represents demand and demand represents the supply of an asset.
4. The bid-ask spread is the de facto measure of market liquidity.

Understanding buy and sell prices

When we are carrying out purchase and sale operations of an asset, we must know that what we are actually doing is placing an order. This order is taken by the exchange that brings it together with the set of orders that have been taken from other users and is classified according to its type (ask or bid) and price. From that moment on, the bidding begins to complete the order, which is only made once the order is completed.

Thus, each purchase order includes the number of assets requested and a proposed purchase price for them. In this case, the highest proposed purchase price is the bid and represents the ask side of the market for a given stock.

Whereas, each sales order also includes a quantity offered and a proposed sale price. The lowest proposed selling price is called the ask price and represents the supply side of the market for a given stock. A buy or sell order is executed if the existing demand matches the existing supply.

If there are no orders covering the spread between the bid and ask, there will be no trades between the brokers. To keep markets running efficiently, market makers make use of this. To do this, they quote bid and ask prices when there are no orders crossing the spread.

It is this dynamic that allows markets to form. Therefore, it is a fundamental dynamic for their formation, whether they are centralized or decentralized.

The difference between the two prices is known as the Ask-Bid Spread or Spread. This is one of the market concepts that every trader should know. This difference will be less when we are in a liquid market. This is because the purchase and sale of the asset will be more dynamic and the liquidity to complete operations will be greater. On the contrary, the spread will be higher, when the market is less liquid to the point where it is practically impossible to buy-sell the asset freely.

In any case, remember that this differential or spread responds to the following key points:

1. The bid-ask spread is the difference between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to accept.
2. The spread is the cost of the transaction. Price takers buy at the ask price and sell at the ask price. But the market maker buys at the bid price and sells at the ask price.
3. Supply represents demand and demand represents the supply of an asset.
4. The bid-ask spread is the de facto measure of market liquidity.

Understanding buy and sell prices

When we are carrying out purchase and sale operations of an asset, we must know that what we are actually doing is placing an order. This order is taken by the exchange that brings it together with the set of orders that have been taken from other users and is classified according to its type (ask or bid) and price. From that moment on, the bidding begins to complete the order, which is only made once the order is completed.

Thus, each purchase order includes the number of assets requested and a proposed purchase price for them. In this case, the highest proposed purchase price is the bid and represents the ask side of the market for a given stock.

Whereas, each sales order also includes a quantity offered and a proposed sale price. The lowest proposed selling price is called the ask price and represents the supply side of the market for a given stock. A buy or sell order is executed if the existing demand matches the existing supply.

If there are no orders covering the spread between the bid and ask, there will be no trades between the brokers. To keep markets running efficiently, market makers make use of this. To do this, they quote bid and ask prices when there are no orders crossing the spread.

It is this dynamic that allows markets to form. Therefore, it is a fundamental dynamic for their formation, whether they are centralized or decentralized.