Understanding the bid and ask price is key to making smarter trading decisions. Whether you’re investing in stocks, forex, or crypto, knowing how these prices work can help you buy at the best value and sell for maximum profit. In this guide, we’ll break down everything you need to know in simple terms, so you can trade with confidence.
If you’ve ever bought or sold something at an auction, you already have a basic understanding of bid and ask prices. In trading, the bid price is the highest amount a buyer is willing to pay for an asset, while the ask price is the lowest amount a seller is willing to accept. The difference between these two prices is called the bid-ask spread, and it plays a huge role in how much it costs to buy and sell in the market.
Think of it like this: If you’re selling a rare baseball card, you might list it for $100, but the highest offer you get is $95. That $95 is the bid price, and your $100 listing price is the ask price. The space between those two numbers is where the negotiation happens. Now, let’s dive deeper to understand how this applies to the stock market, forex trading, and other financial markets.
Bid and ask prices exist in every financial market, from stocks and forex to commodities and cryptocurrency. Every time you look at a trading chart, you see these two prices in action. They fluctuate constantly based on supply and demand. When more buyers are interested in an asset, bid prices rise. When sellers are eager to offload their holdings, ask prices drop.
Let’s say you want to buy a share of Apple stock. The bid price might be $150, meaning buyers are willing to pay up to that amount. The ask price could be $150.05, which means sellers want at least that much per share. If you place a market order, you’ll pay the ask price instantly. If you place a limit order, you can set a specific price at which you’re willing to buy or sell, waiting for the market to meet your terms.
The bid-ask spread is the gap between the bid price and the ask price. This spread varies depending on market conditions and liquidity. If you’re trading a highly liquid stock like Apple or Microsoft, the spread might be just a few cents. But if you’re looking at a low-volume penny stock or a cryptocurrency with fewer traders, the spread could be much wider.
Why does this matter? Because the bid-ask spread represents the cost of trading. If you buy an asset at the ask price and immediately try to sell it at the bid price, you’ll likely lose money due to the spread. That’s why professional traders always consider the spread before making a trade. The tighter the spread, the lower the cost to enter and exit the market.
Bid and ask prices are set by the market, but they don’t just appear out of nowhere. They’re determined by traders, market makers, and liquidity providers who place buy and sell orders on an exchange. In traditional stock markets, large institutions and professional traders help maintain liquidity by constantly placing bids and asks. In forex and cryptocurrency markets, automated trading algorithms play a major role in setting these prices.
Order books—digital records of all buy and sell orders—help display bid and ask prices in real-time. When demand for an asset is high, buyers increase their bids to secure shares. When sellers outnumber buyers, they lower their ask prices to attract buyers. This constant balancing act creates price movement and volatility in the markets.
If you’re a trader, understanding bid and ask prices can help you make smarter decisions. For example, if you’re buying a stock with a wide bid-ask spread, you might pay more than expected. On the other hand, if you’re selling in a liquid market with a tight spread, you’ll get closer to the true market value. Another important concept is slippage, which happens when your order executes at a worse price than expected due to rapid market movements.
When we step into the world of trading, whether in stocks, forex, cryptocurrencies, or commodities, one of the most important concepts we come across is the bid and ask price. We already know that the bid price is what buyers are willing to pay and the ask price is what sellers are asking for. But to truly master trading, we need to understand what influences these prices, how we can use them to our advantage, and how they differ across various markets. The bid-ask spread isn’t just a small detail—it plays a big role in how much we pay when we buy an asset and how much we receive when we sell. By looking deeper into how these prices are formed and how they fluctuate, we can make smarter trading decisions and reduce unnecessary costs.
Every second of the trading day, bid and ask prices are constantly changing. They don’t move randomly—there are key factors that drive these changes. One of the biggest influences is market liquidity, which refers to how easily an asset can be bought or sold without significantly impacting its price. When there are many buyers and sellers actively trading, the spread between bid and ask prices becomes smaller, making transactions more cost-effective. On the other hand, in markets with low liquidity, the spread widens, which means we may have to pay more or sell for less than we’d like.
Another major factor is trading volume. High-volume assets, like Apple or Tesla stocks, tend to have tighter bid-ask spreads because there’s constant activity. Meanwhile, assets that trade less frequently, such as small-cap stocks or certain cryptocurrencies, have wider spreads, making them more expensive to trade. Market volatility also plays a big role. When big news hits—like an earnings report, a change in interest rates, or economic uncertainty—traders rush to buy or sell, causing bid and ask prices to fluctuate wildly. In stable markets, spreads remain relatively tight, but when uncertainty spikes, the spreads widen as buyers and sellers hesitate to commit to a fixed price.
Although the concept of bid and ask prices applies to all financial markets, how they behave varies depending on the type of asset being traded. In the stock market, prices are determined by exchanges like the New York Stock Exchange (NYSE) and NASDAQ, where market makers continuously provide liquidity by placing bid and ask orders. Stocks with high daily trading volume, such as Microsoft, Amazon, and Google, tend to have tight spreads, while smaller or less popular stocks have wider spreads, making it more expensive to enter or exit a trade.
In the forex market, where currencies like the U.S. dollar, euro, and Japanese yen are traded, bid and ask prices change even more frequently. The forex market is decentralized, meaning that banks, financial institutions, and individual traders all contribute to setting prices. Because forex is the most liquid market in the world, major currency pairs like EUR/USD or GBP/USD typically have extremely small spreads, often just a fraction of a cent. However, exotic currency pairs—those that involve currencies from emerging markets—can have much wider spreads due to lower liquidity and higher risk.
Cryptocurrency markets work a little differently. Since crypto exchanges like Binance, Coinbase, and Kraken operate independently from each other, bid and ask prices can vary from platform to platform. Unlike stocks and forex, which have regulated exchanges, crypto trading is more fragmented, leading to different spreads depending on the exchange’s trading volume and liquidity. Well-known coins like Bitcoin (BTC) and Ethereum (ETH) usually have tighter spreads, while lesser-known altcoins often have significant gaps between bid and ask prices, making them more volatile and riskier to trade.
To get a better idea of how bid and ask prices are determined, we can look at the order book, which is a real-time list of all buy and sell orders placed by traders. Market depth, which shows the number of orders at each price level, helps us understand how strong demand is at certain price points. If there are a lot of buy orders at a specific price, it suggests strong support, meaning the price is unlikely to fall below that level. If there are more sell orders, it indicates resistance, meaning it might be tough for the price to rise beyond that point.
By analyzing the order book, we can see where big institutional investors are placing their orders, which gives us clues about potential price movements. If we notice a large number of sell orders at a certain price, we might want to wait before entering a trade to avoid getting caught in a downturn. Similarly, if we see buyers aggressively bidding up the price, it might be a signal that demand is increasing, and the price could rise further.
When we understand bid and ask prices, we gain an edge in trading. Whether we’re investing in stocks, forex, or crypto, knowing how these prices are influenced by liquidity, volume, and market volatility helps us make better decisions. By choosing the right order type, paying attention to the bid-ask spread, and analyzing market depth, we can reduce our trading costs and improve our overall results.
Trading isn’t just about picking the right stocks or currencies—it’s about understanding the mechanics behind price movement. When we take the time to learn how bid and ask prices work, we become more confident traders, ready to navigate the markets with ease. So next time we place a trade, let’s take a closer look at the bid and ask prices. They hold the key to getting the best deals and maximizing our profits.
In normal market conditions, the bid price is always lower than the ask price. If we ever see a situation where the bid price is higher than the ask price, it usually means there’s a pricing error, a technical glitch, or an unusual market event causing extreme volatility. Sometimes, in high-frequency trading environments, price mismatches can happen for a fraction of a second before being corrected automatically. In reality, this kind of situation doesn’t last long, and market forces quickly bring prices back in line.
Bid and ask prices change constantly because they reflect real-time supply and demand in the market. Every time a new trade order is placed, canceled, or filled, the prices update to reflect the latest buying and selling activity. If more buyers are entering the market, the bid price will rise. If sellers are eager to offload their shares, the ask price will drop. External factors like breaking news, earnings reports, economic announcements, and even market sentiment can cause these prices to shift within seconds. That’s why, when we’re trading, we see bid and ask prices moving up and down all the time—it’s simply the market adjusting itself.
The bid price represents what buyers are willing to pay, and the ask price represents what sellers are willing to accept. Since every seller wants to make a profit and every buyer wants a bargain, there is always a gap between the two prices. This difference is called the bid-ask spread, and it exists because trading isn’t an instant process—buyers and sellers negotiate their prices through the market. Market makers and liquidity providers help keep these prices competitive, but a small spread always remains because it represents the cost of facilitating trades.
Not exactly! If we place a market order to buy, we will have to pay the ask price, which is the lowest price sellers are willing to accept at that moment. If we place a market order to sell, we will receive the bid price, which is the highest amount buyers are currently offering. If we want to buy at the bid price or sell at the ask price, we have to place a limit order and wait for the market to move in our favor. However, there’s no guarantee that our order will be filled because prices fluctuate, and other traders may step in with better offers before our trade is executed.
The bid-ask spread plays a huge role in determining how much profit we make on a trade. If the spread is too wide, we may end up paying more to enter a trade and receiving less when we exit. For example, if we buy a stock at an ask price of $50.10 and the bid price is $50.00, we would already be at a slight loss because if we were to sell immediately, we’d only get $50.00. The smaller the spread, the lower our transaction cost. That’s why traders often prefer highly liquid stocks, forex pairs, or cryptocurrencies with tighter spreads—they make it easier to enter and exit trades without losing too much money on each transaction.
No, bid and ask prices tend to be very different during after-hours trading. Since fewer people are trading outside regular market hours, liquidity drops significantly, and the spread between the bid and ask prices widens. This means buying and selling can be more expensive because there aren’t as many buyers and sellers available to match orders. If we place a market order after hours, we might get a much worse price than expected. That’s why many experienced traders either avoid trading outside of regular hours or use limit orders to control the price at which they buy or sell.
The bid-ask spread is closely related to liquidity. Assets that have a high daily trading volume, like Apple stock or major forex pairs such as EUR/USD, tend to have tight spreads because there are many buyers and sellers placing orders constantly. On the other hand, assets that are not traded as frequently, such as small-cap stocks, low-volume cryptocurrencies, or exotic forex pairs, have wider spreads because there’s less activity in the market. When an asset has fewer buyers and sellers, it takes longer for orders to be matched, and traders demand a higher premium to compensate for the risk of holding onto an asset that might be harder to sell.
A good bid-ask spread depends on the asset we’re trading and how frequently it moves. For highly liquid stocks, a spread of just a few cents is considered excellent. For major forex pairs, a spread of less than a pip is ideal. However, for cryptocurrencies or lower-volume stocks, spreads can be much larger, sometimes exceeding several percentage points of the asset’s price. As a general rule, the smaller the spread, the cheaper it is to trade. If we notice a very wide spread, we should be cautious because it could mean low liquidity or high volatility, making the trade riskier.
Market orders are executed immediately at the current ask price if we’re buying or the current bid price if we’re selling. This means we get a quick trade execution but might pay a little more or receive a little less than expected, especially if the spread is wide. Limit orders, on the other hand, allow us to set a specific price at which we want to buy or sell. If we place a buy limit order, we’re telling the market we only want to buy at the bid price or lower. If we place a sell limit order, we’re saying we’ll only sell at the ask price or higher. Using limit orders can help us avoid paying unnecessary fees, but they also mean we might have to wait longer for our trade to be executed.
For long-term investors, the bid-ask spread isn’t as important as it is for day traders or scalpers. If we’re holding a stock or cryptocurrency for months or years, a small spread won’t have a huge impact on our overall returns. However, if we’re trading frequently, even tiny differences in the bid-ask spread can add up over time, reducing our profits. That’s why traders who buy and sell often pay close attention to the spread, while long-term investors focus more on the asset’s fundamentals, growth potential, and overall market conditions.
Bid and ask prices are at the heart of every trade we make, whether we’re investing in stocks, forex, or crypto. Understanding how these prices work, why they change, and how we can use them to our advantage helps us become smarter traders and investors. By paying attention to the bid-ask spread, choosing the right order types, and considering market conditions, we can minimize costs and maximize our returns. The next time we place a trade, let’s take a moment to check the bid and ask prices—it might just save us money and improve our trading strategy!
Don’t know which account will be best for you? Contact us.
VantoFX and V Global Markets are trading names of Vortex LLC, which is incorporated in St Vincent and the Grenadines, number 3433 LLC 2024 by the Registrar of Limited Liability Companies, and registered by the Financial Services Authority, and whose address is Suite 305, Griffith Corporate Centre, PO Box 1510, Beachmont Kingstown, St Vincent and the Grenadines.
The information on this site is not intended for residents of the United States or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
© 2025 Vortex LLC. All rights reserved.