Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Bid and ask price

The bid and ask price is essentially the best prices that a trader is willing to buy and sell for. The bid price is the highest price a buyer is prepared to pay for a financial instrument, while the ask price is the lowest price a seller will accept for the instrument. The difference between the bid price and ask price is often referred to as the bid-ask spread.

Before attempting to trade in any market, it helps to become accustomed to the trading terminology used. Understanding basic trading terms and the market forces associated with them provides a good foundation for any trader. The difference between the bid price and ask price is one of the most basic but crucial theories to understand in trading.

Current price

To understand the difference between the bid price and the ask price of a financial instrument, you must first understand the current price from a trading perspective.

The current price, also known as the market value, is the actual selling price of an asset on an exchange. The current price is constantly fluctuating and is determined by the price at which that asset last traded. Basic economic theory states that the current price is determined where the market forces of supply and demand meet. Fluctuations to either supply or demand cause the current price to rise and fall respectively.

The current price on a market exchange is therefore decided by the most recent amount that was paid for an asset by a trader. It’s the consequence of financial traders, investors and brokers interacting with one another within a given market.

What is the difference between bid and ask?

As the current price represents the market value of a financial instrument, the bid and ask prices represent the maximum buying and minimum selling price respectively.

The bid price, more commonly known as simply the ‘bid’, is defined as the maximum price that a buyer is willing to pay for a financial instrument.
The ask price, usually referred to as the ‘ask’, is defined as the minimum price that a seller is willing to accept for the instrument.

The bid price is normally higher than the current price of the instrument, while the ask price is usually lower than the current price. The difference between the bid price and ask price is commonly known as the bid and ask spread, bid-offer spread or bid-ask spread.

Bid-ask spread

The bid-ask spread, or the bid and ask spread, is the difference between the bid price and the ask price of an instrument. For example, the difference in price between someone buying a stock and someone selling a stock represents the bid-ask spread.

Both the bid and ask prices are displayed in real-time and are constantly updating. The changing difference between the two prices is a key indicator of the liquidity of the market and the size of the transaction cost.

High liquidity in a financial market is often caused by a large number of orders to buy and sell in that market. This liquidity enables you to buy and sell closer to the market value price. Therefore, the bid-ask spread tightens the more liquid a market is. The opposite is true when the market is less liquid. In this case, the spread increases as it’s harder to sell and buy near the market value due to a lack of volume in trades.

Bid-ask spread costs

We offer trading opportunities on a range of markets, including forex, indices, commodities, shares and treasuries. To get an overview of the minimum spreads we offer on our instruments, see our range of markets. When trading on shares, for example, there is an additional cost built into the spread that traders should be aware of. Visit our trading costs page for more information.

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