Bid and offer: Difference between revisions
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{{g}}The “[[bid price]]” is the price at which you would buy something (think, in an auction, of making a bid), whereas the “[[offer price]]” or | {{g}}The “[[bid price]]” is the price at which you would buy something (think, in an auction, of making a bid), whereas the “[[offer price]]” or “[[ask price]]” is the price at which you would sell it. Think of offering to sell your house, or offering something at auction. | ||
Usually a punter like you or me in the market is doing one thing at any time: buying or selling. But there are many market participants — [[market maker]]s, [[dealer]]s, [[broker]]s, [[broker/dealer]]s and so on — who make it their business to be buying and selling the same thing— say, a particular [[bond]], [[stock]] or [[currency]] — at the same time. | Usually a punter like you or me in the market is doing one thing at any time: buying or selling. But there are many market participants — [[market maker]]s, [[dealer]]s, [[broker]]s, [[broker/dealer]]s and so on — who make it their business to be buying and selling the same thing— say, a particular [[bond]], [[stock]] or [[currency]] — at the same time. | ||
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These people depend for their livelihoods on being able to sell that thing for a higher price than they can buy it. Thus they will [[bid]] a bit low of the genuine consensus value value — the “[[mid-market price]]” or “[[mid]]” of the item — and [[offer]] a bit high. The difference between a broker’s bid and ask is called the brokers’ “[[bid-offer spread]]”, or “[[spread]]”.<ref>Also called the [[bid-ask]] spread.</ref> | These people depend for their livelihoods on being able to sell that thing for a higher price than they can buy it. Thus they will [[bid]] a bit low of the genuine consensus value value — the “[[mid-market price]]” or “[[mid]]” of the item — and [[offer]] a bit high. The difference between a broker’s bid and ask is called the brokers’ “[[bid-offer spread]]”, or “[[spread]]”.<ref>Also called the [[bid-ask]] spread.</ref> | ||
Brokers get away with this because ''every'' one does the same thing — you would be a knuckle-head not to — so their competitive advantage comes down to how | Brokers get away with this because ''every'' one does the same thing — you would be a knuckle-head not to — so their competitive advantage comes down to how ’tight is their [[spread]] around the [[mid-market price]]. | ||
[[ISDA Ninja]]s will also see references to “{{isdaprov|Mid-Market Events}}” when closing out an {{isdama}} for a {{isdaprov|Termination Event}} with two {{isdaprov|Affected Parties}} (that is, no naughtiness on the part of one party justifying the other “innocent” party gouging its eyes out on {{isdaprov|Transaction}} termination. | |||
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Latest revision as of 12:33, 15 January 2020
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The “bid price” is the price at which you would buy something (think, in an auction, of making a bid), whereas the “offer price” or “ask price” is the price at which you would sell it. Think of offering to sell your house, or offering something at auction.
Usually a punter like you or me in the market is doing one thing at any time: buying or selling. But there are many market participants — market makers, dealers, brokers, broker/dealers and so on — who make it their business to be buying and selling the same thing— say, a particular bond, stock or currency — at the same time.
These people depend for their livelihoods on being able to sell that thing for a higher price than they can buy it. Thus they will bid a bit low of the genuine consensus value value — the “mid-market price” or “mid” of the item — and offer a bit high. The difference between a broker’s bid and ask is called the brokers’ “bid-offer spread”, or “spread”.[1]
Brokers get away with this because every one does the same thing — you would be a knuckle-head not to — so their competitive advantage comes down to how ’tight is their spread around the mid-market price.
ISDA Ninjas will also see references to “Mid-Market Events” when closing out an ISDA Master Agreement for a Termination Event with two Affected Parties (that is, no naughtiness on the part of one party justifying the other “innocent” party gouging its eyes out on Transaction termination.