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Can someone explain a stock's “bid” vs. “ask” price relative to “current” price?
In the stock market, why is there a difference between the buy price and sell price of a stock? If buyer offers 10 $ for stock A, and seller agrees, then both buy and sell price is 10 $. So why is there a difference?
When there is a difference between the two ... no trading occurs.
Let's look at an example: Investor A, B, C, and D all buy/sell shares of company X. Investor A wants to sell 10 shares at $20 a share (Ask price $20 x10). Investor B wants to buy 15 shares at $10 a share (Bid price $10 x15). Since the bid price and ask price are different, no sale is made.
Next Investor C comes along and wants to sell 5 shares at $14 (Ask price $14 x5). Still no sale.
Investor D comes along and wants to buy 5 shares for $14 each. So a sale is finally made. At this point, the stock quote moves to $14. The ask price is $20 x10 and the bid price is $10 x15. No further trading will occur until another investor is willing to buy at $20 or sell at $10.
Another discussion of this topic is shown on this post.
This is called the Ask-Bid Spread. The difference varies based on the liquidly of the asset. The more liquid or the higher the volume of trades for the asset then the smaller the spread is. The spread goes to the broker to pay for some of the cost of the trade. My guess is that when there is a higher volume of shares being traded, brokers need to take less of a fee per share out of the transaction to cover their costs. This makes the spread is smaller.
This is essentially the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it.
The seller will get the bid price and the buyer will pay the ask and the broker keeps the spread.
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