Bid price

A bid price is the price a prospective buyer is willing to pay for an asset. It is usually the highest price they are prepared to pay. It is often referred to as simply the bid.

The bid price can be affected by the bid size, which is in essence the size of the asset the trader wants to purchase. This could be the number of shares, bonds or the desired value of a base currency.

The bid price is not the same as the current price, which is the price that was paid for the security the last time it was traded. A bid price could be lower or higher than the current price, depending on its perceived value in current market conditions.

The bid in a spread

The opposite of the bid price is the ask price (the desired price by the seller) - the difference between the two is the bid/ask spread, or more commonly just the spread.

Bids in trading

In trading, the bid price is the highest price in the market shown on the quote services on a trading platform. Conversely, the ask price will be lowest a seller is willing to accept if they sell.

Unsolicited bids

An unsolicited bid may be made by a trader or investor for something that is not actually for sale. This is most commonly seen in company takeovers when an investor acquires enough shares to put them in a strong enough position to buy the whole company or a controlling share of it. The owners of the company or other asset may choose to reject the bid, although the bidder may then raise their bid price and keep raising it to the point that the owner decides to sell.

If more than one unsolicited bid is received, then this is called a bidding war. Each bidder will raise their bid price against those offered by the other bidders, similar to what happens in an auction. In a bidding war, the winning bidder runs the risk of overpaying, that is paying more than the purchased asset is actually worth and more than the ask price.

See also ask price.

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