Bid and Offer in the Financial Market: A Private Guide for Beginner Investors

In the stock trading industry, the terms Bid and Offer are vocabulary that newcomers to the market often encounter for the first time. However, understanding these two concepts is crucial for trading success. Offer refers to the minimum selling price that a seller is willing to accept, while Bid is the highest price a buyer is willing to pay. Both factors greatly influence risk management and profit generation in stock trading.

What is an Offer and What Does It Mean?

Offer or asking price is the lowest amount at which a securities seller is willing to sell. This reflects the seller’s perception of the true value of the securities they hold. When an investor wants to buy a stock or any asset, the price they pay will be the Offer price set by the seller.

Understanding that the Offer price represents the minimum selling price helps investors see the overall market picture more clearly. For example, if you want to buy a company’s stock and the Offer is at 100 baht, it means the seller is willing to sell at that price only, no less.

The Offer price is usually higher than the Bid price because sellers want to get a good price, while buyers aim to pay less. The gap between these two prices is called the spread, which is managed by the broker or intermediary handling the transaction.

What is a Bid and What Does It Indicate?

Bid is the current highest price a securities buyer is willing to pay. This value provides information about market demand for the asset, confirming that the more buyers there are, the higher the Bid price will be.

The difference between Bid and Offer is quite clear. Buyers want to pay as low as possible, so they submit Bid prices below the Offer. In modern electronic trading systems, transactions occur instantly when Bid and Offer prices match.

Main Differences Between Bid and Offer in the Market

What is the Bid-Ask Spread and Why Is It Important?

The spread (Spread) is the difference between the Bid and Offer prices. It indicates market liquidity and the degree of price competition. A narrow spread suggests continuous trading and many investors participating, while a wide spread indicates low liquidity.

For example, if a stock’s Bid is at 100 baht and the Offer is at 101 baht, the spread is 1 baht. Typical stocks in the stock market have narrow spreads, but less traded securities may have spreads of several percentage points of the price.

Techniques for Analyzing Bid-Offer in Trading

Correctly reading and interpreting Bid-Offer prices is a vital skill, with common patterns including:

Narrow Bid and Narrow Offer: Indicates a potential trading trend but with low trading volume. (Low volume) Traders should monitor whether buying interest increases; if volume rises, prices may move further.

Narrow Bid and Wide Offer: Usually occurs in the mid-phase of an uptrend. Large investors may be accumulating at higher Bid prices, and trading volume increases, possibly leading to cancellation of the Offer and higher prices.

Wide Bid and Narrow Offer: Often appears in the final stages of a trend. Prices may not move much, and trading activity slows down.

Wide Bid and Wide Offer: Occurs when volume peaks. If seen at the start of a trend or breakout point, prices could surge significantly. Conversely, if at the end of a trend, caution is advised for potential reversal.

Generating Profits by Understanding Bid-Offer

Accurately reading Bid-Offer figures helps traders time their entries and exits better. For example:

Suppose an investor wants to buy Stock A at 150 baht. The last recorded price is 150 baht, but when attempting to buy, the actual transaction price is 150.50 baht. This difference is the Offer, which is higher than the Bid price, say 149.50 baht. This is called the Bid-Ask Spread.

Real Market Data: Bid-Offer Volatility

Bid and Offer prices change constantly, often within minutes or seconds. In high-volume markets, if demand exceeds supply, both Bid and Offer tend to rise. Conversely, if supply exceeds demand, they tend to fall. Market liquidity (Liquidity) determines the size of the spread. Highly traded securities like large-cap stocks may have spreads as narrow as 0.5%, while small-cap stocks may have spreads of 2-5%.

Advantages and Disadvantages of Monitoring Bid-Offer Prices

Advantages:

• Helps understand market demand and supply clearly
• Assists in deciding whether the current price is suitable for buying or selling
• Reflects investor confidence in the security
• Aids in planning trading strategies

Disadvantages:

• Wide spreads can eat into profits, making gains harder
• Buyers may have to pay higher Offer prices than expected
• Low liquidity markets make exiting positions difficult
• Some securities with wide spreads are hard to profit from

Why Are Bid-Offer Prices Important?

Understanding Bid and Offer, including the Spread, is fundamental for traders. However, merely knowing these concepts is not enough; practice and experience in reading Bid-Offer in various market conditions are essential.

In modern markets, this data updates rapidly, requiring traders to make quick decisions. Traders skilled at reading the Bid-Ask Spread gain an advantage in timing trades and reducing trading costs. Therefore, studying these details is a worthwhile investment for long-term trading success.