3

Maybe it seems a very silly question but I think it is not. I am working as developer for a firm and I have a huge problem to remember and distinguish what the bid and the ask prices are.

I know that the bid is related to the best buy order in the market meaning that if you execute a selling market order you will sell the shares at this price.

What do you use to remember this in a straight forward way? (without realizing all the reasoning that I have made)

Thank you very much

  • 1
    Trade your own money and you'll never mix it up again once you introduces consequences. – CQM Mar 29 '19 at 16:19
9

The words are straight forward,

  • bid is what someone bids for your shares;

  • ask is what someone asks for his shares, if you care to buy them.

But if the literal interpretation is difficult to remember:

  • the higher price is always what you would pay if you buy
  • the lower price is what you would get if you sell.
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3

Suppose the bid is $10 and the ask is $12. All you have to remember is that the bid/ask spread never works in your favour: when you sell, you'll be paid the lower of these prices ($10, the bid) and when you buy you'll pay the higher one ($12, the ask).

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3

Both of them are a dollar amount. They both refer to the money. The ask is someone asking for money: they are offering to sell. The bid is someone bidding a certain amount of money: they are trying to buy.

Are you familiar with auction terminology? When someone bids on an item, they are offering to buy it for that price. If the person auctioning the item off isn't satisfied with the current bid, they will ask for more.

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-1

A market maker is a designated market participant or a brokerage firm that offers to buy and sell securities at displayed prices on a securities exchange.

As an analogy, think of the market maker as the retail owner of a business. In order to make a profit, he buys at the lower price and marks it up in order to sell at a higher price.

You are the customer. When buying, you pay the higher price. If the market maker is restocking inventory, since he buys at the lower price (wholesale), that is what is available to you as a seller (retail).

If so inclined, you can act as a market maker and post better prices than the market maker but that's Bid/Ask 201.

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