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What Is A Bid?
The Best Bid
In stock trading the term bid defines the highest sum any stock purchaser is willing to pay for a given stock. The bid amount is what is used to put stock seller and buyer together to complete a stock trade. The bid amount is akin to what someone is offering to pay say for a painting. They see the painting, like it, and then based on its value and how much they are willing to pay, set a price for it. The bid price is what they are willing to pay out in order to take the painting, no questions asked. The same rule applies in stock trading. The stock bid is put out by buyers looking to buy a stock but pay the best possible price. A stock buyer may say, for example:
1,000 shares of stock X for $14.50 per share
Stock X could be trading for approximately $14.52 per share
A seller of stock X is willing to sell 1,000 shares for $14.50
Since the ask price, that from the seller, and the bid price are the same, the stock sale will be executed.
Stock Bids
Stock bids are necessary when dealing in stocks for a simple reason: in stocks one is dealing with estimated value, meaning supply and demand will actually determine the price. Just because your stock states that its value is $45 per share does not mean you have the right to sell it and demand that $45 from someone. Stocks are issued from companies, but it is not the companies who buy and sell them directly. A stock is traded, sold, to another private party. For this reason there has to be room to negotiate for what one seller wants for his shares, and what a buyer is willing to pay for them. When selling stocks, there will always be some loss from what is thought to be the face value and the actual sale amount. Just like when buying foreign currency in a bank, the bank has two amounts. They will most often sell the currency for a higher price than they will actually buy it off of you. This is supply and demand, and its why there are always two prices for each stock at any given moment: the best ask price, and the best bid price. The reported share value seen on stock tickers and newspaper financial sections is actually an average of these two amounts.
Related posts:- How Do A Bid And Ask Work In Stock Trading?
- What Is An Ask?
- What Is A Covered Call?
- What Is An Option?
- What Is A Call?
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