Bid and offer are terms that are used very commonly in the share market, forex market, and car dealerships. However, these terms can be applied to all things that can be sold and bought in the market. Many people who have not traded stocks, currencies or bought or sold their cars at car dealerships remain confused between these two terms as also with the difference between the bid and offer prices. Let us understand the difference between bid and offer in this article.
Bid
Whether at an auction or in the market, the highest price that a buyer can pay for a product or a service is called bid price. If you are the buyer, you are referred to as a bidder and the price at which you are willing to buy the product is called your bid. When we talk about share market, a bid is always the highest price an investor agrees to pay for the shares of a stock. If you have some shares of a company, the bid price comes from a share broker who agrees to pay you the bid price that is the highest he is willing to pay you in exchange for your shares.
In the share market, the broker is the buyer, and you are the seller. So he is the bidder as he makes a bid to buy your stock. In the case of a used car, bid price is the price that a car broker or second hand car dealer agrees to pay to you to buy your used car. In forex market, the bid price is the price at which the market is willing to sell a currency pair to an investor.
Offer
Offer price is always the price that a seller demands for the product or service. So, if you are a customer and interested in buying a currency pair at the forex market, the price quoted by the market is the offer price and the market becomes the seller. In the case of a car dealer, the offer price is the price at which a buyer is offered a used car. The offer price is always higher than the bid price, and the difference is dependent upon the liquidity of the product. This difference is the lowest in case of currencies as they are very liquid while, in the case of used cars, this difference is very high. If you decide to buy some units of a fund from a fund manager, he will make available these units at the offer price which is what is certainly higher than you would be quoted if you went in to sell your own units of the same fund.
What is the difference between Bid and Offer?
• Bid price is always lower than the ask price of the same commodity and the difference is often called the spread.
• Bid price is the price at which the market buys from you a pair of currencies whereas offer price is the price at which the market sells you a pair of currencies. The same applies in the context of a share market.
• In the case of a car dealer, bid price is the price at which the car dealer buys your second hand car, and the offer price is the price at which you have to buy the same car if you went in to buy it from the dealer.