UK Accounting Glossary
Offer (a certain price) for something, especially at an auction.
‘Bid’ – can simply mean offering to buy shares. It may also mean the highest price which you are prepared to pay for a given security at a particular time.
You’ll also come across the term “bid price”. This is the price at which a market-maker in the stockmarket is prepared to buy shares from existing holders. It will be below his offer price – the price at which he will sell.
These terms are also used to refer to the prices at which a fund management company will buy back/sell units in a unit trust or similar pooled investment.
‘Bid’ – in the context of a takeover bid means making an offer for the shares of another company. When one company seeks to take over another it makes a bid – an offer to buy at a stated price. A takeover bid must be a general offer to all the shareholders of the target company.
The price offered will be above the market price of the target company (being highly unlikely to succeed otherwise). City rules on takeovers stipulate a time-limit for acceptance of the bid.
In practical terms, the bid is the available price at which an investor can sell shares of stock. The ask is the available price at which an investor can buy shares of stock. The bid and the ask together create the dealer’s quotation. This system of bid and ask pricing is used by the stock markets to match buyers and sellers. The ask price is almost always a little higher than the bid price. The difference, or spread, between the bid and ask is what the market makers use as their profit margin for handling the transaction. If the bid is $2.20 and the ask is $2.23, the spread between the bid and ask, also called the bid/ask spread, is .03 or 3 cents.
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This glossary post was last updated: 4th February 2020.