Bid Price

Definition

The term bid price is used to describe the price at which an investor is willing to buy a security.  The bid price is the converse of the ask price, which is the price an investor is willing to receive when selling a security.

Explanation

Bid and ask prices are of prime importance to the equities market as well as other financial instruments, since they tell investors the prices at which an investor is willing to buy or sell a security.  These two values are always quoted as a pair, with the bid price always being the lower value.  The difference between these two values is known as the bid /ask spread.

When an investor places a market order for a security, they are telling their broker to make the purchase at the best available price.  In order to provide the investor with a near instantaneous purchase, the price paid for the security will be the ask price.

Alternatively, the investor may specify a price at which they are willing to purchase the security.  For example, the investor might place a limit order with their broker, which will be a price below the current market price of the security.  If the price of the security were to decline, and the market's bid price for the security is at, or lower than, the investor's bid price, then the transaction can be executed.

Related Terms

ask price, non-equity option, margin call, market maker