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When trading, you will hear about the “bid and ask price.”
What is it, and how do you use it?
What is the Bid and Ask Price?
Very easy:
– The “Bid” is the price that buyers are willing to pay for a stock and
– The “Ask” is the price that sellers are willing to sell a stock for.
Here’s an example:
In this example, buyers are willing to pay $259.06 for Apple (AAPL), but sellers want at least $259.10 per share.
Let’s think about it for a moment:
Some people think that the exchange is determining the price of a stock.
And that’s not the case!
The price of a stock is determined by the price that buyers and sellers are willing to trade at.
Let me give you an example:
When you walk into an art gallery and see a painting with a price tag of $30,000, then THIS is the asking price of the seller of the painting.
It’s NOT the “fair price.”
It’s simply a price that the seller would like to get when selling the painting.
He’s “asking” for it.
You, as a potential buyer, could now offer — or bid — $20,000.
Now the seller has 2 choices:
- He can accept your bid or
- He can lower his asking price and see…
