Hey, dear readers I’m back again with another great informative article on my stock market series. I’m this article I’m going to give you detailed information regarding on Bid and Ask price. Understanding the difference between Bid and Ask price is important in order to understand the what’s going on in the market. In my previous article how to place Limit, Market SL and SL-M order. If you remember I told you never place Market & SL-M Market order on those stocks where volume is too low & where is bigger difference between Bid and Ask price. In this article I provided you deep Information on Bid and Ask price & then you know why I’m asking this to you. So let’s get started with understanding what is the difference between Bid and Ask price.
Bid Price: In your trading terminal market watch window if you clearly watch then you find two columns first one is Bid price column & second one is Ask price column. If you ever attend any auction event then you see that they display a product like any antic car and buyers making a Bid on that car. Showing your interest to buying a any kind of product and bidding on it is called Bid price. In this example if buyer is interested to buy a that car then he is bidding on it on a specific price. I stock market stocks are trades so we are bidding on stocks.
In stock market if buyer are interested to buy any particular Stock let’s Reliance industries at the price of 950. Then he is bidding on it by placing a Limit buy order. In simple words in which price you placing a buying order is called Bid Price.
Ask Price: If I want to buy any stock then I placed Bid order. Similarly if I’m interested to sell any particular stock that I’m holding then I placed Ask order. In which particular price that I’m ready to sell a stock is called Ask price. In simple words Ask Price is asked by the seller to buyer of that stock.
If the bidding & asked price matched with each other then trade will happend. In Bid price example I placed a buying order of one reliance industries share at the price of 950 (Bid Price). On other hand if the seller also placed a selling order of one reliance industries share at the price of 950 (Ask Price) then trade will happend because our price & quantity of shares got matched with each other.
I hope now the mystery of Bid & Ask price got cleared in your mind. One thing still I have to clear for you. In my how to place Limit, Market, SL & SL-M order article I clearly hold you never place Market order & SL-M order on that stocks where is less volume happens. In my next article I also provide you deep Information on what is volume in stock market.
I told you this because less volume cause bigger the price difference between Bid and Ask Price. Now you know buying order is called Bid order and sell order is called Ask order. Now the thing I that when we placed a buying order & we set the bid price then our buying order (Bid Order) is only executed when our buying order price is matched with seller’s selling price (Ask Price).
In limit order we set our Bid order price or Ask order price. Our buying or sell order is remained in the system & only executed when our Bid Order (Buying Price) got matched with Ask Order price (Selling Price) & vice-versa.
Now the problem is that when we placed Market Order. You know in market order we didn’t have to mentioned any Buying or Selling price. In market order Our buying order (Bid order) got executed at any price selling price (Ask price) that asked by the seller because our order is market order.
Now read this carefully if the volume of stock is too low (Low volume cause bigger the difference between Bid and Ask price). The current market price of that low volume stock is 100 & you placed a Market Order on that low volume Stock by thinking your stock got executed at the current market price (100 Rupees). On other hand there is a seller he placed a sell Limit order at the price of 102 (His order is limit order & his order is only got executed when the buying price is matched with his selling price). But your buying price is market price & the current market price is 102 which is asked by the seller. So in this scenario your buying order is got executed at the price of 102 not 100 because the current seller Asking you for 102 & your order is market order & in market order we didn’t mentioning any buying price value & our order is got executed by the any price that asked by the seller. If you place any selling market order then your order is got executed by the any price that bid by the buyer.
In order to protect yourself from this kind of scenario always check the volumes & different between the bid and ask price before placing any buying & selling market order by opening snap quote (F6) window in your trading terminal.
This is the Quote window of reliance industries. As you see there is lots of volume happen on that stock & there is only 5 Paisa difference b/w Bid and Ask price. 5 Paisa is minimum tick size in Indian Stock Market.
In these types of high volume stocks you can place a Market and SL-M order without any worry. On the other hand there is some Midcap & Smallcap stocks where volume is too low & that cause bigger difference b/w Bid & Ask Price. Look as the example of SE Investments stock there is exact 1.55 Rupees difference b/w Bid and Ask Price & also look at the volume of that stock which is 8588. As i told you before less volume cause bigger the price difference b/w Bid and Ask Price.
The last traded price of that stock is 228. If you placing a buying market order in that stock by thinking your stock is gonna execute at 228 price then your wrong because the current minimum price offer by the seller is 229.60. which is 1.60 rupees higher than your imagine value. Never use market order on these types of low volume stocks.
All the stocks of Nifty-50 has higher volume so don’t worry about that if you just traded the stocks of Nifty-50. Some small & midcap stocks have less volume so always check the volume by opening the quote window before placing any market order on that type of stocks.
- Placing a Buying order is called Bid order.
- Placing a Sell order is called Ask order.
- Your Bid order is executed at the Ask Price and vice-verse.
- When the Bid Price & Quantity got matched with Ask Price & Quantity the trade will happen.
- Volume means number’s of trades happens on that particular day.
- Lesser volume means bigger the difference b/w Bid and Ask Price.
- Never place Market Order where volume is too low.
- Always check the snap quote window before placing a order of any midcap & smallcap stocks.
- The difference b/w Bid ask Price is called Bid Ask Spread.
- Never forgot to share my post on any one social media network. (hahahahah)
So this is from me in this article. If you like & learn something from me than you know what to do next.
You can also read my article to understand what is the difference b/w trading & demat account.