Bid Price

The bid price is the highest price at which market participants are currently willing to buy a security, a currency or another instrument. Its counterpart is the ask price, the lowest price at which market participants are currently willing to sell. Buyers do not want to pay more than a certain price (the bid), and sellers do not want to sell below a certain price (the ask).

How it works

A trader who wants to sell immediately receives the bid price, because that is the best price buyers are currently offering. A sell-at-market order, for example, is executed at the best available bid. The difference between the bid and the higher ask is the spread – one of the main trading costs, especially for short-term traders.

Example: EUR/USD is quoted at 1.1000 / 1.1002. The first figure is the bid, the second the ask. A trader who sells – whether to close a long position or to open a short position – does so at 1.1000. The spread is 0.0002, or 2 pips. For a position of one standard lot (100,000 euros), that amounts to $20.

Why it matters for traders

The spread between bid and ask shows how liquid a market is. In heavily traded markets such as the major currency pairs, many buyers and sellers compete with each other, so bid and ask are usually close together. In less liquid instruments, at times of low trading activity or when important news is released, the gap tends to widen – and every trade becomes more expensive. Traders who open and close positions frequently should therefore keep a close eye on the spread.