Business, Legal & Accounting Glossary
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.
‘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.
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: 15th February, 2020