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I am currently researching the mechanics of CFD trading and, being new to this, am a bit confused about certain terms. I understand that the "bid" is the price that the CFD is sold at and the "offer" is the price at which it is bought. I also understand that the difference between the two is the "spread".

What I don't get is, how can the bid and the offer be different? If I am a seller, I will sell it for the offer, and I have to buy it at the offer price. It seems that I only care about the bid when I sell it back, because then I sell it back at the bid.

Wouldn't it make more sense to say that the offer is the price at which the seller sells the CFD's in the initial transaction and the bid is the price at which the trader/buyer sells it back. And since the values will change, either rising or falling, the prices will also change.

In short, I guess i am trying to understand the function of the spread to begin with.

Thank you in advance

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    Country ? Many of the trading service providers have tutotials/videos on their websites. Many organize seminars to discuss these. Did you get a chance to explore these before ? – DumbCoder Dec 9 '15 at 12:53
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    Your question is not specific to CFDs; this is the standard question about how price discovery works on exchanges, and has been answered here repeatedly: money.stackexchange.com/questions/23919, money.stackexchange.com/questions/15156, money.stackexchange.com/questions/14500, money.stackexchange.com/questions/16600, money.stackexchange.com/questions/11101, ... – dg99 Dec 9 '15 at 16:20
  • Thanks, these links were a yellow brick road for me. I got what I was looking for, a puzzle piece I was unaware of: the current price at which the stock is valued only represents the price at which it was last sold, rather than any objective value pricing. The current bid/ask prices reflect the prices at which the buyers and sellers are currently willing to pay for the stock. And until one of them moves in order to match the other's price, or some third party comes in willing to pay for the asking price, no stock will be sold. Is this correct? – user11308 Dec 10 '15 at 13:35
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The bid and offer are the current best prices for people who have placed a limit order to buy or sell. If you come to the market and want immediate execution, those are your current options. If you come to the market and don't like the current bid/offer, you can place your own limit order at a different price and wait to see if someone else comes later willing to trade at your price.

The spread won't ever be $0 because, if it were "momentarily" $0, then the orders would be matched in a completed transaction and removed from the bid/ask listing.

  • Thanks. I admit that in order to appreciate your answer I had to look up the links mentioned by dg99 above, but once I had that background your answer clicked immediately. – user11308 Dec 10 '15 at 13:37

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