## What are Bid and Offer? Understanding the Trading Market

When trading stocks or financial assets, investors encounter two very important terms: **Bid** (buying price) and **Offer** (selling price). These two terms are closely related to the pricing of securities in the market, depending on the buying and selling decisions of individuals, financial institutions, and investors.

The relationship between demand and supply plays a crucial role in both price levels. When demand exceeds supply, the bid and offer prices tend to rise. Conversely, when supply surpasses demand, both prices tend to decrease. Understanding these fluctuations is fundamental for traders aiming to operate efficiently.

## What is Bid? Understanding from the Buyer’s Perspective

**Bid** or buying price refers to the maximum amount a buyer is willing to pay for a security or asset. The bid price reflects the buyer’s effort to negotiate. The more buyers interested in the asset, the higher the bid price will go.

A key component of the buying strategy is that buyers often offer lower prices than the current offer when initiating a trade, hoping to get a better deal. The bidding process can be conducted online through trading platforms or via brokers (broker) in traditional trading.

For example, if an investor wants to sell shares of a company, they first need to check the market’s valuation of that stock, which is indicated by the amount buyers are willing to pay for it.

## Offer: The Price Sellers Want

**Offer** is the selling price set by the seller, representing the minimum amount they are willing to accept for the security. When an investor wants to buy an asset, they consider how much others are willing to sell it for, focusing on the offer price, which is the seller’s minimum.

Offer prices often vary depending on market conditions, price volatility, and seller expectations. Usually, the offer price is higher than the bid price because sellers tend to expect higher prices.

## What is Bid-Ask Spread? The Difference Investors Need to Know

The difference between the bid and offer prices is called the **Bid-Ask Spread** or **spread**. This spread is significant for assessing the liquidity of an asset. Narrow spreads indicate high liquidity, while wider spreads increase trading costs.

When exploring the market, you may notice some securities have narrow bids and thick offers, indicating continuous buying activity but not enough sellers. In such cases, persistent buying signals can be a sign to watch closely.

## Applying Bid and Offer in Investment Decisions

Understanding Bid and Offer is not just about looking at numbers; it offers multiple benefits. First, it helps investors better time their entry and exit points (Position). Market orders (Market Order) will execute at the bid or offer price depending on the order type. Although experts may be familiar with different order types, they cannot guarantee exact prices.

Second, bid and offer prices assist in effectively using Limit Orders (limit buy/sell orders) and Stop Loss orders (stop-loss orders). Those who understand this system well can reduce costs and increase profits.

## Techniques for Reading Bid and Offer in Trading

Expert market analysis requires observing changing Bid and Offer patterns:

**Narrow Bid and Thick Offer**: This indicates a positive outlook but insufficient trading volume (Volume). If continuous buying occurs and the offer remains thick, keep an eye on it because increasing trading volume suggests potential price movement.

**Narrow Bid and Thick Offer**: This scenario is attractive for large investors preparing to bid for a buyout, expecting the offer to gradually increase.

**Thick Bid and Narrow Offer**: Commonly seen at the end of an uptrend. Frequent buying suggests a possible slowdown, and it might be wise to let the opportunity pass as price movements tend to decrease.

**Thick Bid and Thick Offer**: Indicates high trading volume. If this occurs at a breakout point (Breakout) or trend initiation, prices could surge further. However, at the end of a trend, it’s advisable to avoid trading.

## Main Differences Between Bid and Offer

Bid and Offer are not fixed numbers; they change rapidly every second in the stock market due to fluctuating supply and demand, market liquidity, and investor confidence.

**Price Aspect**: The bid price (buying) is the highest price a buyer is willing to pay, while the offer price (selling) is the lowest price a seller is willing to accept. Generally, the offer is higher than the bid.

**Supply and Demand**: The offer price reflects supply, while the bid price reflects demand.

**Strategy**: When many buyers enter the market, the bid rises. When supply decreases, the offer tends to increase as well.

**Comparison Table:**

| Feature | Bid Price | Offer Price |
|---------|--------------|--------------|
| Meaning | Highest price buyers are willing to pay | Lowest price sellers are willing to accept |
| Size | Usually lower than the offer | Usually higher than the bid |
| Symbol | Indicates demand | Indicates supply |

## Case Study: Real-World Stock Purchase Example

An investor wants to buy shares of a large company. They notice the latest trading price is $173 per share. They decide to buy 10 shares, expecting to pay $1,730. However, the final amount paid turns out to be $1,731.

This happens because the $173 price they saw is the last traded price (Last Price), not the current offer price. The actual offer price is $173.10 per share, which explains the extra dollar paid.

This case teaches us that in trading, the current displayed price is not always the price you will get when placing a Market Order. Unaware traders might wonder why they paid more than expected.

## Benefits and Drawbacks of Understanding Bid and Offer

**Advantages:**

Knowing Bid and Offer helps sellers understand the true value of securities. A high bid indicates strong demand, a positive signal for the asset. It also allows investors to adjust strategies according to market conditions. During a bull market, buyers are willing to pay higher prices; during a bear market, sellers lower their prices.

**Disadvantages:**

The spread (difference) between bid and offer can hinder entry and exit. Sometimes, sellers are unwilling to sell at the bid price, causing transaction delays. For novice investors, misunderstanding the difference between Last Price and Offer Price can cause confusion.

Additionally, in markets with low trading volume (Low Liquidity), spreads tend to widen, increasing trading costs. Small-cap securities or assets with low liquidity often face this issue.

## Summary: The Importance of Bid and Offer in Investment

**Bid and Offer** are essential components in securities trading. Studying these along with overall market conditions can help you trade more intelligently.

Large-cap stocks, such as major listed companies, usually have narrow Bid and Offer spreads due to high trading volume. Conversely, small-cap stocks or bonds may have wider spreads, sometimes expressed as a percentage.

For those aiming to generate income from the stock market, a deep understanding of Bid and Offer can help control costs and boost profits. Investment returns can meet short-term and long-term financial goals, but require continuous study and practice.