What is the difference between bid and ask prices?

What are bid, ask and offer prices?

A live market quote has two prices. The bid price is the highest price a buyer is willing to pay for an instrument, while the ask price is the lowest price a seller is willing to accept. When a trade is executed immediately, buyers typically pay the ask price and sellers typically receive the bid price.

The offer price is simply another name for the ask price, so the two terms refer to the same side of the quote. Trading platforms display both prices because buyers and sellers are willing to trade at different levels. Rather than showing a single market price, a quote reflects both buying and selling interest.

The price shown on a chart is not always the same as the price at which you can trade. Bid and ask prices reflect the best available buying and selling prices at that moment, but they can change quickly as market conditions, liquidity and trading activity evolve. Large orders or periods of high volatility may also affect the price at which an order is filled.

Bid or ask: which price is used for market orders?

A market order is executed at the best available price at the time it reaches the market rather than at a specific price chosen by the trader.

If you place a buy order, it will normally be executed at the ask price. If you place a sell order, it will normally be executed at the bid price. This is why trading platforms such as MT4 and MT5 display two prices for the same instrument.

In fast-moving markets, prices can change between the moment you place an order and the moment it is executed. As a result, the final execution price may differ slightly from the quote you initially saw.

A market order prioritises speed over price certainty. In stable market conditions, the execution price may be very close to the quoted price. During periods of higher volatility, however, prices can move more quickly, increasing the likelihood of small differences between the quoted and executed price.

Why is the ask price usually higher than the bid price?

The ask price is usually higher than the bid price. The difference between the two is known as the spread. It represents the gap between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.

This difference exists because buyers and sellers are not willing to trade at exactly the same price at the same time. If you buy at the current market price, you will typically pay the ask price. If you sell, you will typically receive the bid price.

The size of the spread can change throughout the trading day depending on market conditions, liquidity and volatility. During quieter periods, spreads may remain relatively stable, while periods of increased market activity or major news announcements can lead to wider spreads.

How the bid-ask spread affects trading cost

The bid-ask spread is the difference between the ask price and the bid price. For example, if an instrument has an ask price of 5.13 and a bid price of 5.10, the spread is 0.03.

The spread is one of the costs associated with entering and exiting a trade. When you open a position, the market generally needs to move by at least the value of the spread before your trade reaches break-even, assuming no other costs or price movements. In forex, spreads are often measured in pips, while for CFDs on indices or commodities they may be shown in points.

Depending on the product and broker, trading costs may also include commissions, overnight financing charges or other fees. The total cost of a trade depends on the product you are trading and the pricing model that applies.

Why do spreads vary between brokers and accounts?

Spreads can vary between brokers, account types and financial instruments. Some pricing models include more of the trading cost within the spread, while others combine tighter spreads with a separate commission.

The size of the spread can also vary depending on the market. Highly liquid instruments may have narrower spreads, while less liquid markets or periods of increased volatility can result in wider spreads. This reflects changes in market conditions rather than a fixed spread at all times.

The total cost of trading depends on the product and account type you choose. Before placing a trade, it is worth checking the applicable spread, commissions and any other charges that may apply.

How liquidity affects bid-ask spreads

Higher liquidity usually leads to narrower spreads because there are more buyers and sellers willing to trade at similar prices. In less liquid markets, spreads are often wider as fewer participants are available to match buy and sell orders.

For example, major forex pairs often have tighter spreads during busy London and New York trading sessions, when trading activity is at its highest. By contrast, less frequently traded instruments or quieter market sessions may have wider spreads.

Spreads can also widen during major economic news announcements, market opens, holidays or periods of increased volatility. Checking the live quote before placing a trade can give you a more accurate view of current market conditions.

How bid and ask prices reflect supply and demand

Bid and ask prices change as buying and selling activity changes. When more traders are willing to buy an instrument, bid prices may rise. When more traders are willing to sell, ask prices may fall as sellers compete for buyers.

Together, the bid and ask prices provide a real-time view of market activity. As buyers and sellers adjust the prices they are willing to trade at, the quote changes to reflect current market conditions.

These changes can happen quickly, particularly in active markets such as major forex pairs during the London and New York trading sessions. While bid and ask prices reflect current buying and selling interest, they do not indicate where prices will move next.

How bid and ask prices work: an example

Suppose an instrument has a bid price of $20.00 and an ask price of $20.05. If you place a market buy order, you would typically pay $20.05. If you place a market sell order, you would typically receive $20.00. The difference between the two prices is the $0.05 spread.

This example shows why buyers and sellers see different prices for the same instrument. The price displayed on a chart or watchlist is not always the exact price at which your trade will be executed. The bid and ask prices shown on the trading platform provide the best available prices at that moment.

As market prices change, both the bid and ask prices move together. The gap between them may become narrower or wider depending on market conditions, but the same principle applies: buyers trade at the ask price, while sellers trade at the bid price.

How limit orders use bid and ask prices

Unlike a market order, a limit order lets you choose the price at which you want to buy or sell. Rather than accepting the current bid or ask price, the order will only be executed if the market reaches your chosen price or a better one. This gives you greater control over the execution price, although there is no guarantee that the order will be filled.

For example, if an instrument is quoted at a 5.10 bid and 5.13 ask, you could place a buy limit order at 5.11. The order would only be executed if the ask price falls to 5.11 or below. Likewise, a sell limit order would only be execute if the bid price rises to your chosen price or higher.

Whether a limit order is filled depends on market conditions, including price movement and liquidity. If the market never reaches your chosen price, the order will remain unfilled.

Where you'll see bid and ask prices

Bid and ask prices appear across many financial markets, including shares, bonds, commodities and options. While quotes may look slightly different depending on the market or trading platform, they all help traders see the current prices available for buying and selling.

Stocks and shares

Bid and ask prices are commonly displayed alongside the current share price to show the prices at which buyers and sellers are prepared to trade. These live quotes help traders see the current market for a stock before placing an order.

If you trade share CFDs rather than owning shares directly, your platform will still display bid and ask prices in the same way. The main difference is the product itself. With CFDs, you are trading on price movements rather than owning the underlying shares, so margin requirements, trading costs and other conditions may differ.

Bonds

Bond markets also use bid and ask prices, although quotes may sometimes be displayed as prices, yields or percentages of face value depending on the market and platform.

As with other financial instruments, the difference between the bid and ask price represents the spread. In less actively traded bond markets, wider spreads may occur because there are fewer buyers and sellers available at any given time.

Commodities

Commodities such as gold, silver, crude oil and natural gas are also quoted using bid and ask prices. Whether you are viewing spot markets, futures or commodity CFDs, the same two-sided quote shows the prices available for buying and selling.

Commodity spreads can change throughout the trading day as liquidity and market activity change. During periods of increased volatility or lower trading activity, the difference between the bid and ask price may become wider.

Options

Options are usually displayed in an option chain, where each contract has its own bid and ask price. This allows traders to compare prices across different strike prices and expiry dates.

The spread can vary from one option contract to another depending on trading activity and liquidity. Contracts that are actively traded often have narrower spreads, while less frequently traded contracts may have wider bid-ask spreads.