Before investing in stock market, one should be aware of few terms which are like the ABCD of a stock market. If you want buy or sell shares by yourself then one common things you should know is the Bid Price and Ask price. This is necessary when you get online access from your broker to trade online.
Bid price and ask price are never same. Ask price is always higher than the Bid price. The term bid means the highest price a market maker is wiling to buy to purchase a stock or a person willing to pay.
Ask price is price at which market maker will sell the number of stock at specified price. In short, Bid and Ask prices are the best prices buyers and sellers are ready to close the deal at.
For example, we will consider the SBI stock, which is traded on the NSE. Order book is a place where you can see how many buyers and sellers are available at present and what price they are quoting. Buy quantity in order book means number of people who are ready to buy at the buy price that is bid price.
Sell quantity is number of shares that are ready to be a sold at a particular time by a number of investors.
Currently, shares of SBI are trading at 307.50. The Buy quantity is at 1, 231 nos at a price of Rs 307.50 and sell quantity is for 903 nos at a price of Rs 307.55. In short in the example above, the bid price is Rs 307.50, while the offer price is Rs 307.55.
As informed earlier, sell price always higher then the bid price. The difference between bid price and ask price is called as Spread.
The size of the spread will depend on the liquidity of the asset. Higher the liquidity the size of the spread will be less. The less liquid stock will have higher difference.