The stock market can be daunting for those getting started with investing. The jargon and terminology can be overwhelming, making it difficult to comprehend the market’s inner workings. Two key terms that are commonly used in stock trading are ‘bid’ and ‘ask.’
These terms refer to the prices at which buyers are willing to purchase a stock (bid), and sellers are willing to sell a stock (ask).
To be successful in the stock market in the Philippines, it is important to understand these concepts and how they influence stock prices. This guide will examine what is bid and ask in stock market mean and how they affect investing decisions.
What Is the Stock Market?
Before diving into bid and ask, it’s important to define what the stock market is. The stock market is a way of exchanging equity ownership in publicly traded companies.
It allows investors to buy and sell shares of those companies, with prices determined by supply and demand. Prices change constantly throughout the day as new buyers and sellers enter the market.
What Is Bid and Ask In Stock Market?
Now that we know what the stock market is, let’s take answer the question — what is bid and ask in stock market? These terms refer to two different types of quotes for a given security or asset.
The bid price is the highest price someone is willing to pay for an asset at any given time. Meanwhile, the ask price (sometimes called the “offer” price) is the lowest price someone is willing to sell an asset for.
How Does Bid and Ask Work?
The bid and ask process works like this: When a buyer places an order, they specify the highest price they will pay for the stock (the bid). Meanwhile, when sellers place their order, they specify the lowest price they will accept (the ask).
If multiple buyers and sellers exist at any given time, those orders can be matched up differently. For example, if two bids are placed at PHP 50, and two asks are placed at PHP 51, then both orders can be filled.
The first purchase would be PHP 50, and the second purchase would be PHP 51. In this way, the bid-and-ask system ensures fair pricing for everyone involved in a trade.
What Are the Benefits of Bid and Ask?
One of the primary benefits of knowing bid and ask prices is that they provide insight into market sentiment. When there is higher demand than supply, the bid may exceed the ask, meaning buyers are willing to pay more than what sellers are asking for.
This indicates an optimistic view on the future value of that asset, which could signal a potential buy opportunity for those looking to invest.
One good example is the image below of PETRON last 5th of May 2023 around 11am. Notice at the bottom of the image where Total Bid have more than 4 million pending shares over Total Ask.
Meaning at the current time, there’s more shares that have pending buy order(Bid) versus total shares that are pending to be sold(Ask) which could potentially drive the prices of the stock up.
Bid and ask prices also give traders an indication of liquidity. If the bid and ask are tight, meaning there is very little difference between the two prices, it indicates that there is ample liquidity in the market and it will be easier for traders to open and close positions without significantly impacting the price.
On the other hand, if there is a large spread between both prices, it can be more difficult to enter or exit positions without driving up costs.
How Can You Use Bid and Ask To Your Advantage?
Now that you know what bid and ask are, let’s look at how to use this information to your advantage when trading stocks.
Key an Eye on Bids and Offers
First, it’s important to keep an eye on the bids and offers for different stocks, so you have a good idea of where the market is heading. This will give you an idea of whether the stock will likely increase or decrease in value over time.
Utilize Scaping or Arbitrage
You can also use bid and ask to your advantage by “scalping” or “arbitrage.” With scalping, you try to buy and sell the same stock quickly to make a small profit. Arbitrage is similar but involves taking advantage of price differences between different markets.
Stay Updated on the Latest News
Finally, it’s important to remember that external factors such as news or market sentiment can affect bid and ask. It’s important to stay up-to-date on any news related to stocks you are interested in so that you can use this information to your advantage when trading.
Final Thoughts – What is Bid and Ask in Stock Market
As you can see, understanding how bid and ask work is essential for any investor looking to make informed decisions when trading stocks.
Knowing how to use these two tools to your advantage will give you an edge in the stock market as a Filipino investor. With the right knowledge and tools, you can be skilled when trading stocks, giving you a greater chance of success.
If you need more in-depth information about this topic, consider buying our book I Dare You to Trade (I.D.Y.O.T.T) for more trading tips, strategies and more.