Bid and ask prices: The market mechanism that traders need to understand

Why Should You Care About Bid-Offer?

Many traders face the question: why are the buying and selling prices not the same? The answer lies in understanding the Bid (buying price) and Offer (selling price) mechanisms, which are the main drivers of the stock market.

The Bid price is the highest amount a buyer is willing to pay, while the Offer is the lowest amount a seller is willing to accept. The gap between these two prices is called the “spread,” and this is the real market driving force.

What is the (buying price) (Bid)?

Bid is the price that buyers develop, or in other words, the actual price buyers are offering. When there are many buyers in the market, the Bid price tends to rise accordingly, reflecting demand for the asset.

Characteristics of Bid:

• Always lower than Offer because buyers want to purchase at a favorable price
• Reflects market demand: the more people want the asset, the higher the Bid
• Can be offered through brokers—both online and offline

Example: If you want to sell shares, you need to check how much buyers are willing to pay. That is the Bid price you will receive.

What is the (selling price) (Offer)?

Offer is the price set by the seller, or the minimum amount the seller is willing to accept for the security. Understanding the Offer price is crucial for buyers because it represents the actual cost they need to pay.

Features of Offer:

• Always higher than Bid because sellers expect a higher value
• Sign of supply: when many sellers are present, the Offer price tends to decrease
• Applicable in all markets: bonds, derivatives, forex—all operate on the same principle

Example: When you want to buy shares, you pay at the Offer price set by the seller.

How to read and leverage Bid-Offer

What does a thick Bid and thin Offer indicate?

Thick Bid, Thin Offer means there is a large volume of bids but limited sell orders. This is an interesting signal:

• Meaning: many buyers are waiting, but sellers are not eager
• Interpretation: it may indicate the market is preparing for a price increase, as buyers are waiting for a good entry point
• Strategy: monitor this signal; as buying volume increases, prices often surge

Other patterns to know

Thin Bid, Thin Offer: a period with low volume, few buyers and sellers. Caution is advised as prices can move rapidly.

Thin Bid, Thick Offer: many sellers but little interest from buyers. Negative signal; avoid.

Thick Bid, Thick Offer: market is full of volume; a good sign, especially if it occurs at trend start or breakout points.

Key differences between Bid and Offer

How Bid-Offer moves with market conditions

Bull Market (

When the market is trending upward:

• Buyers are willing to pay higher Bid prices
• Because they know they can sell at higher prices later
• Result: Bid and Offer prices both move up; spreads may narrow

) Bear Market ###

In a downtrend:

• Buyers become cautious, lowering Bid prices
• Sellers rush to sell to avoid losses, lowering Offer prices
• Result: both Bid and Offer decrease

Why is Bid-Offer important for traders?

( Main benefits )

1. Indicates market direction — The width of Bid-Offer helps you understand how strong market conviction is.

2. Cost savings — Reading Bid-Offer helps you enter and exit positions at better prices.

3. Strategy development — Experts use Bid-Offer patterns to test market movements.

4. Liquidity assessment — Narrow spreads indicate good liquidity; wide spreads imply higher risk.

Cautionary points

1. Sellers may be unwilling — If Bid prices are too low, sellers may not be willing to transact, causing delays.

2. Wide spreads = difficulty in profit — Especially in low-liquidity securities, wide spreads increase trading costs.

3. Incomplete data — Electronic trading systems may hide order book details, so Bid-Offer may not show the full picture.

4. Novice traders may not understand — Many buy stocks via market orders without realizing they need to pay the Offer price.

Real-world example

Somchai is a new investor in the stock market. He sees Stock A at a current price of $173 and decides to buy 10 shares.

After the trade, he finds he paid $1,731 instead of $1,730.

Why? Because the $173 he saw was the Bid (last traded price). The actual price he paid was $173.10, which was the Offer of the seller at that moment.

A 10-cent difference per share may seem small, but when trading in large quantities, these costs accumulate.

Techniques to manage Bid-Offer for better profits

Limit Order vs Market Order

• Limit Order: specify the price you are willing to pay, similar to placing your own Bid. Lower cost but no guarantee of execution.
• Market Order: accept the current Offer, executed quickly but at the prevailing price.

Reading spreads

• Narrow spread (typically 0.01-0.05 dollars) = high liquidity securities suitable for trading
• Wide spread (above 1 dollar) = low liquidity, higher risk

Bid-Ask Strategy

• When you see a thick Bid and thin Offer, traders wait for demand to expand.
• When volume increases, spreads tend to narrow; this is the entry point.

Summary of key points

1. Bid ≠ Offer — Bid is the buy price, Offer is the sell price; the difference is the cost traders pay.
2. Thick Bid, Thin Offer — a signal used by professional traders indicating buyer willingness and seller hesitation.
3. Spread = Hidden cost — high spreads eat into your profits.
4. Market prices are dynamic — Bid and Offer prices change every second based on demand and supply.
5. Order priority — understanding Bid-Offer is fundamental to becoming an effective trader.

In a competitive stock market full of experienced players, this small knowledge can be a crucial advantage.