The bid price is the highest price that a buyer (the bidder) is willing to pay for goods or services. In this definition, it is related to financial instruments or products such as securities, commodities, or Forex to name just a few examples.
When viewing financial price quotes, these will be displayed as two numbers. For example, GBP/USD (commonly known as Cable) may be quoted via a live broker or trading platform as 1.2380-1.2381.
Using the above example, the bid price or simply the bid would be 1.2380 which is the highest price available in the market at which a buyer (the bidder) is prepared to buy GBP/USD. The higher number quoted is the ask or offer price and is the lowest price at which a seller is prepared to sell GBP/USD.
The difference between the two prices above is referred to as the bid/ask spread or more commonly just the spread. The closer or tighter the spread, the more beneficial this is to traders.
Key takeaways:
- The bid price is the highest price in the market that a buyer will pay for a financial instrument.
- The difference between the bid price and the ask price is known as the spread.
- The bid price is normally lower than the offer price unless in extreme circumstances.