What is the Difference Between Bid and Offer?

The difference between bid and offer lies in their definitions and the roles they play in the market. Here are the key differences between the two:

1. Meaning: The bid price refers to the highest price at which a buyer is willing to pay for a security, while the offer price represents the lowest price at which a seller is willing to sell the security.
2. Demand and Supply: The bid price represents the demand for the security, while the offer price represents the supply of the security.
3. Price Relationship: The bid price is always lower than the offer price. This is because buyers want to buy at lower prices, while sellers want to sell at higher prices.
4. Liquidity Indicator: The difference between the bid and offer prices, known as the bid-ask spread, is an indicator of a security's liquidity. A narrow spread suggests high liquidity, while a wide spread indicates low liquidity.
5. Trade Execution: A trade or transaction occurs when a buyer and seller agree on a price for the security. This happens when the buyer is willing to pay the best offer available and the seller is willing to accept the highest bid.

In summary, the bid price is the highest price a buyer is willing to pay, while the offer price is the lowest price a seller is willing to accept. The difference between these two prices, known as the bid-ask spread, is an indicator of the liquidity of the security. When a buyer and seller agree on a price, a trade is executed.

Comparative Table: Bid vs Offer

The difference between the bid and offer prices, also known as the bid-ask spread, is a crucial concept in financial markets. Here is a table summarizing the key differences between the bid and offer prices:

The bid-ask spread, which is the difference between the bid and ask prices, is an indicator of market liquidity. When the spread is narrow, it indicates a more liquid market for the security or derivative, while a wide spread suggests a less liquid market.