Bid — Definition Explained Simply | Examples & Role
Bid is the price at which a bank, broker, or other market participant is willing to buy a currency or securities. In currency transactions, the bid reflects the rate at which a bank or broker (the buyer) is ready to purchase foreign currency from a client.
Bid is the purchase price of a financial asset (currency, stocks, bonds, etc.) on the market. In other words, it is the maximum price a buyer is willing to pay at a given moment. In currency operations, the bid reflects the rate at which a bank or broker buys foreign currency from a client.
The term is always used together with Ask, which indicates the selling price. The difference between these two values is called the spread and is one of the key indicators of market liquidity.
Bid in currency trading
On the Forex market, the bid shows the rate at which a trader can sell the base currency. For example, if the EUR/USD quote is 1.1000/1.1002, then 1.1000 is the bid price (buying euros for dollars), while 1.1002 is the ask price.
Importance for market participants
- For a bank client, the bid is the rate at which the bank buys currency from the customer.
- For a Forex trader, the bid is the price at which a sell order can be opened.
- The closer the bid and ask are to each other, the higher the market liquidity.
Examples
- EUR/USD quotation = 1.1000/1.1002 → bid = 1.1000.
- In a bank, the buying rate for USD (bid) is 94 RUB.
- On the stock exchange, a stock may be quoted at bid = 101.5 and ask = 102.0.