What does bid/ask mean

The bid and ask prices are fundamental concepts in the world of finance, particularly in trading stocks, bonds, and other securities. Here's a detailed explanation: 1. **Bid Price**: This is the highest price that a buyer is willing to pay for a security. It represents the demand side of the market. For example, if the bid price for a stock is $100, it means that investors are willing to pay up to $100 for that stock. 2. **Ask Price**: This is the lowest price that a seller is willing to accept for a security. It represents the supply side of the market. If the ask price for the same stock is $105, it means that sellers are willing to sell the stock for $105 or less. 3. **Bid-Ask Spread**: This is the difference between the bid price and the ask price. It represents the cost of trading a security, including the fees that brokers or market makers charge. In our example, the bid-ask spread would be $5 ($105 - $100). 4. **Market Liquidity**: The bid-ask spread is an indicator of market liquidity. A narrow bid-ask spread indicates high liquidity, as there are many buyers and sellers close to the current price, making it easy to buy or sell a security. A wide bid-ask spread indicates low liquidity, as there are fewer buyers and sellers, and the price may fluctuate more. 5. **Profit for Market Makers**: The bid-ask spread is how market makers and brokers profit from trading. They buy at the bid price and sell at the ask price, capturing the difference as their profit. Understanding bid and ask prices is crucial for investors and traders, as it helps them make informed decisions about when to buy or sell securities and at what prices.