## What is Bid Offer? A Guide to Reading the Bid-Ask Spread for New Investors

Anyone who has placed a buy or sell order on a stock exchange platform will likely see two different numbers appearing – one is the bid price (bid), and the other is the offer price (offer). These two figures are not ordinary; they directly determine whether you can make a profit or not. This article will help you understand this concept thoroughly.

### What is a Bid (Buying Price)?

**Bid** is the highest price a buyer is willing to pay for an asset. When demand increases, the bid also rises. Conversely, when supply exceeds demand, the bid decreases.

Example: If you want to sell a stock, you need to know how many people are willing to buy it and at what price. That number is the bid.

Characteristics of the bid:
- Always lower than the offer
- Reflects demand from buyers
- Changes continuously based on market conditions
- Can be placed online or through a broker

### What is an Offer (Selling Price)?

**Offer** is the minimum price a seller is willing to accept to transfer the asset. If you want to buy a stock, the offer shows the lowest price anyone is willing to sell at.

Example: An investor wanting to buy a stock will look at the offer to know how much they need to pay.

Characteristics of the offer:
- Always higher than the bid
- Reflects the seller’s target price
- Applied in most markets (index certificates, bonds, forex)

### The Core Difference Between Bid and Offer

| **Criteria** | **Bid (Buying Price)** | **Offer (Selling Price)** |
|---|---|---|
| **Definition** | Highest price buyers pay | Minimum price sellers accept |
| **Level** | Always lower | Always higher |
| **Significance** | Indicates demand | Indicates supply |
| **Application** | When you want to sell | When you want to buy |

The gap between these two prices is called the **spread** – which is the profit margin for brokers or the trading platform.

### Bid-Ask Spread (Difference between bid and offer) is what?

The spread is the difference between the offer and the bid. The larger the spread, the harder it is to make a profit because:
- You have to buy at a high price (offer)
- You have to sell at a low price (bid)

Assets with high liquidity (like BTC, ETH) usually have narrow spreads, while small-cap stocks or illiquid bonds tend to have wider spreads.

### Advantages of the Bid-Offer Spread

**For sellers:**
- Know the true value of the assets held
- Wide spread = less interest in the asset
- Narrow spread = hot asset, many quotes

**For buyers:**
- Understand actual transaction costs
- Easily compare prices across different markets
- Help optimize buying strategies

**For the overall market:**
- Reflects actual supply-demand dynamics
- Helps in fairer valuation
- Creates transparency in transactions

### Disadvantages of the Bid-Offer Spread

**For buyers:**
- Offer prices are often above current market prices, increasing purchase costs
- Beginners may be easily deceived if they don’t understand the spread
- Market illiquidity → sudden increase in offer prices

**For sellers:**
- Bid prices are often below expectations, making sales difficult
- Market illiquidity → deep decline in bid prices
- In modern electronic trading, millions of orders per day make it hard to find the right bid at the right moment

### How to Read Bid-Offer in Practice

Investors often use the following techniques to analyze:

**1. Narrow Bid - Narrow Offer**
- Indicates a potential trend but no significant trading volume yet
- Note: if continuous buying volume appears, monitor closely; if volume increases, price may continue to rise

**2. Narrow Bid - Wide Offer**
- Continuous buying flow with a wide spread = large investors preparing to push prices higher
- Offer prices will gradually increase; this is an opportunity to watch

**3. Wide Bid - Narrow Offer**
- Usually appears at the end of a trend
- Buying flow exists but spread is narrow = price has almost exhausted its upward momentum
- Avoid entering at this point

**4. Wide Bid - Wide Offer**
- Highest trading volume
- If appearing at the start of a trend or breakout → prices will surge
- If at the end of a trend → exercise caution

### Real-life Example

Thang is a new investor. He wants to buy 10 shares of Company X at the listed price of 173 USD/share. He calculates: 10 × 173 = 1,730 USD.

But when placing the order, he is charged 1,731 USD. He thinks there is an error, but then realizes:
- 173 USD is the last traded price (mid-price)
- The actual offer price is 173.10 USD/share
- He must pay an extra 0.10 USD/share = 1 USD in total

That is the bid-ask spread he overlooked.

### How Do Bid-Offer Prices Change Over Time?

On the index certificate market, bid and offer prices change every second based on current demand and supply. They are not fixed but reflect actual liquidity.

**Rules:**
- Demand > supply → bid and offer increase
- Supply > demand → bid and offer decrease
- High trading volume → narrow spread (bid-offer close together)
- Low trading volume → wide spread (bid-offer far apart)

### Why is the Spread Important?

The spread is not just a transaction cost – it’s a window into the asset’s health:

- **Large assets (BTC, ETH):** Narrow spread, easy to buy and sell
- **Small-cap stocks:** Wide spread, difficult to trade
- **Illiquid bonds:** Spread can reach several percent

If you buy at the offer price and sell at the bid price, your profit will be eaten up by the spread. Therefore, understanding the bid-offer is key to effective trading.

### Conclusion

**Bid-offer is not a complicated concept**, but many investors overlook it. When trading any asset – especially those with low liquidity – you need to understand the spread to optimize costs.

Investing in index certificates has proven to be an effective way to generate cash flow. But to succeed, you need to learn and master concepts like bid-offer. This will help you achieve your short-term and long-term financial goals.