I just gained a clearer understanding of what a bid offer really is because I see many people asking about it. Simply put, a bid offer is the buying and selling prices set by the market, determined by the decisions of individuals and institutional investors.

The bid price refers to the highest price a buyer is willing to pay for a security or stock, while the offer is the lowest price a seller is willing to accept. Both figures fluctuate based on supply and demand. If demand exceeds supply, both the bid and offer will move upward. Conversely, if supply exceeds demand, both prices will decrease.

This is very important in trading. Understanding that the bid offer is the foundation of trading is crucial. The bid price is always lower than the offer price because sellers expect higher prices, while buyers usually propose lower prices. The difference between these two prices is called the spread.

A technique to observe the bid offer is to notice whether the bid is narrow or wide, and whether the offer is narrow or wide. If both bid and offer are narrow, it indicates a trend but no volume yet, because not many people are trading. If the bid is narrow but the offer is wide, it suggests that large investors might be preparing to place buy orders. When the bid is wide and the offer is narrow, it often occurs at the end of a trend. If both bid and offer are wide, it indicates the highest volume period.

A real example: Somsak wants to buy stock A at $173 per share, intending to buy 10 shares, expecting to spend $1,730. But when he actually pays, it turns out to be $1,731, an extra $1. This is because the $173 price is the latest trading price, while the actual price paid is the offer at $173.10. That’s the difference between bid and offer in actual trading.

Understanding the bid offer helps you trade better because it indicates the market’s liquidity. A narrow spread shows good market liquidity, while a wide spread can make trading more difficult. Large-cap stocks usually have narrow spreads, whereas small-cap stocks may have wider spreads. Therefore, beginners should study what bid offer is and the liquidity of the securities they plan to trade before making investment decisions.