Bid Price/Ask Price
The term bid refers to the highest price a buyer will pay to buy a specified number of shares of a stock at any given time. The term ask refers to the lowest price at which a seller will sell the stock.
The bid price will almost always be lower than the ask or offer, price. The difference between the bid price and the ask price is called the spread.
Investing vs. Trading
Investing and trading are two different methods of attempting to profit in the financial markets. Both investors and traders seek profits through market participation. Investors generally seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame, taking smaller, more frequent profits.
Day Trader
A day trader is a type of trader who executes a relatively large volume of short and long trades to capitalize on intraday market price action. The goal is to profit from very short-term price movements. Day traders can also use leverage to amplify returns, which can also amplify losses.
Day traders employ a wide variety of techniques in order to capitalize on market inefficiencies, often making many trades a day and closing positions before the trading day ends.
Swing Trader
Swing trading is a style of trading that attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing traders primarily use technical analysis to look for trading opportunities.
Margin and Marging Trading
Margin refers to the amount of equity an investor has in their brokerage account. “To buy on margin” means to use the money borrowed from a broker to purchase securities. You must have a margin account to do so, rather than a standard brokerage account. A margin account is a brokerage account in which the broker lends the investor money to buy more securities than what they could otherwise buy with the balance in their account.
Market Making
Order Book
Liquidity pool
Primary Market
A primary market is a source of new securities. Often on an exchange, it’s where companies, governments, and other groups go to obtain financing through debt-based or equity-based securities.
In the primary market, new stocks and bonds are sold to the public for the first time.
In a primary market, investors are able to purchase securities directly from the issuer.
Secondary Market
The secondary market is where investors buy and sell securities. Trades take place on the secondary market between other investors and traders rather than from the companies that issue the securities.
Initial Public Offer
Ask Price
Note
In traditional financial markets, the buy and sell orders that are placed on a specific market are called bids and asks.
While bids are offers in a base currency for a unit of the trading asset, asks are the selling prices set by those holding the asset and looking to sell. Therefore, the asking price is the minimum price that an individual would be willing to sell their asset, or the minimum amount that they want to receive in return for the unit they are parting with.
In an exchange’s order book, the highest bid price and the lowest asking price are the first to fill when a trader utilizes a market order, meaning that a selling market order will match the highest bid, and a buying market order the lowest asking price. The gap between the lowest asking price and the highest bid price is what is known as the spread of the market.
A liquid market tends to have a smaller spread because the buying and selling sides are made up of more orders (more people in the market that are willing to place an order into the order book). When setting a limit sell order, an individual can define a specific asking price, but if their price is not the lowest, it will not be the first one to be filled. It will simply add depth to the existing order book for this asset. In contrast, when using a market order, traders are not able to set the asking price manually, and their order will be executed instantly according to the best price available matching the highest bid of the order book
Bid Price
The bid price is the highest price that a particular buyer is willing to pay for a specific product or service. In the context of financial markets, it is the value buyers offer for an asset, such as a commodity, security, or cryptocurrency.
Note
A trading order book consists of multiple bid prices (on the side of buyers) and asking prices (on the side of sellers). The highest bid price is always lower than the lowest asking price and the difference between them is referred to as a bid-ask spread.
Traders or investors that are willing to sell their assets or stock positions need to either accept one of the bid prices available on the order book (ideally, the highest one) or to set an asking price and wait until a buyer eventually bids against that value, filling the order.
In financial markets, traders have the power to decide what price they are willing to buy or sell an asset and they do so at the moment they create their order. Clearly, if the price they set is too far apart from the current market price, their order won’t be filled.
In a situation where multiple buyers are competing for an asset and start putting their bids, one after the other, we would have what is sometimes referred to as a bidding war. When a bidding war occurs, buyers replace their bids higher and higher in order to cover the bids of other competing buyers and this would probably cause the market prices for that asset to increase rapidly.
Security
Property or goods that you promise to give to someone if you cannot pay what you owe them.
Market Order
A market order is an instruction by an investor to a broker to buy or sell stock shares, bonds, or other assets at the best available price in the current financial market.
A market order is an instruction to buy or sell a security immediately at the current price.