A Brief Intro to Forex Trading Definitions – Bid, Ask, and Last Price

Posted on January 24, 2019 at 05:02 PM CET Forex News

In order to succeed in day trading market, you need to be aware of the involved jargon. Whether you are investing in the stock market, futures or best forex trading in the USA, you are likely to come across terms like bid price, ask price and last price. As a pro, you must be already aware of these terms, but if you are still planning a deep plunge in this field, you can benefit from the information given here. Let’s start with concise definitions:

Bid Price: It is the maximum price, which a prospective buyer is willing to pay for a particular security.

Ask Price: It is the minimum price, which a prospective seller agrees to sell the same order or security.

Last Price: This refers to the price of the last transaction. Mostly, newspapers reveal only last price and in fact, it reflects a better picture of the present value.

Notably, the difference between the bid and ask prices, referred to as bid-ask spread, plays a key role in determining the asset’s liquidity. Here is more on all these prices in detail.

More on Bid Price

At any time, the bid price indicates the highest price of a stock, which a buyer is willing to pay for it. Considering the global presence of the trading market, this bid price is likely to fluctuate frequently. Hence, to know the current bids and offers, using an effective tool is advisable. It should furnish information on all the existing offers and bids. In addition, make sure that the tool also provides details on the contracts or shares that are undergoing the bidding process, along with their respective prices.

How does Bid Price work?

In the stock market, the buyer sets the bid price. To be precise, instead of paying the market price, an investor can quote a limit order to the broker in order to buy specific security. The order should, however, lie under a fixed price. For instance, suppose the shares of a company are available between $40 and $45 on a day. You might express interest in buying the shares but at a lower price, say $43. In this case, you will have to ask your broker to set “limit order” for 100 shares at $43. As you have indicated a bid price, the broker will execute the trade at a price equal to or lower than $43.

More on Ask Price

Learn how to trade and the asking price refers to the lowest price acceptable to a prospective seller in lieu of a particular security. Also called as offer price, it keeps changing constantly all through the day, as the traders continue to re-evaluate the price they want while selling their shares

How Ask Price works?

Just like in the case of the bid price, the investor can leverage “limit order” to inform about his willingness to sell the security. But it should be more than a certain price. For example, suppose you want to sell the shares of a company that you own. Throughout the day, the shares of that company are trading between $40 and $45. However, you would like to sell the security only above $44. As you have indicated a selling price, your broker will execute the trade only at a price equal to more than it.

The Bid-Ask Spread

Most exchanges quote maximum bid and minimum ask prices. The difference between these two is the bid-ask spread and this value indicates the difference between the seller and buyer quotes. For instance, if you want to bid in stock for $23.5, but the seller has set the asking price as $25, the bid-ask spread is $1.5. A better offer from some other bidder like $24, $24.5, etc., could further narrow down the gap. In general, the mid-range spread inactive pairs remains in the range of .1 to 1.5 pips. This spread also works as the cost of a transaction during trading.

The last price

It could be the bid price or the asking price, but most precisely, it is the price fixed after a mutual agreement between the bidder and the seller. For example, you may wish to sell your commercial space for $250,000. A buyer party expresses interest in buying it but at $230,000 only. Ultimately, you both close the deal at $240,000, which eventually becomes the last price.

When doing trade in the stock market, in-depth information on all these aspects could help you close lucrative deals. Hence, awareness is important and even more essential is the choice of broker. So act smartly and make handsome monetary gains.