Stockbroker jargon explained: Bid, offer and spread

Fsp Invest, 25 Nov. 2013

Tags: stockbroker, bid, offer, spread, stock exchange, what is the bid, what is the offer, what is the spread, ask, investing,

When you buy and sell shares, your stockbroker will use some jargon which describes the prices of the share you’re buying or selling. And that’s the ‘bid,’ ‘offer’ and ‘spread’. These terms tell you how much you could sell a share at, buy a share at and the difference between the selling and buying price. Let’s delve a bit deeper into the bid, offer and spread…

Here’s how to make sense of the ‘bid,’ ‘offer’ and ‘spread,’ Gareth Stokes in Fear, Greed and the Stock Market explains…

The offer price

You can view the shopkeeper as the seller of shares. In stock markets we use the term offer to refer to the price a seller is willing to accept for his share.

Think of the offer price as the price tag on a particular item in the shop.

The bid price

The shopper is the buyer (or purchaser of shares). A buyer is prepared to bid a certain amount of money for an item in the shop.

So think of the amount of money you’re prepared to pay for an item in the shop as the bid price...

Of course, in a supermarket there is no haggling – and you have no option but to pay the offer price of the goods in the store.

How the bid and offer price work on the stock exchange

So where the stock market differs from a normal store is that it has the exciting element of an ‘auction’ built into it. In a way we can view the market as a giant auction house – where sellers offer and buyers bid on a particular share until a meeting of minds occurs.

This meeting of minds results in a trade at a price (called the market price or spot price). This happens day in, day out, year after year, through market ups and downs, as long as a particular stock remains listed on the stock market.

This action of buyers and sellers is the market action. This action determines the price of a share.

The difference between the buyer’s bid price and the seller’s offer price is the spread. In general, the larger the spread between the bid and offer price, the more illiquid the share.

The bid, offer and spread is also called the bid, ask and spread.

So there you have it, what the bid, offer and spread are.

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