How Do the Bid and Ask Prices Work with Trading? TRADING BASICS SERIES

in this video guys we’re going to look at what is the bid and ask

stay tuned

hey traders a very warm welcome to you thank you for joining me alright so this simple

quick guide i’m going to the difference between the bid and the ask what they mean what does it mean for you as a retail trader so welcome to the channel if you’re new here make sure you stick around and subscribe got

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trading strategies basics jargon etc if you’re into trading you like trading you’ll love it here make sure you are subscribed okay so what’s the bid and what is the ask so imagine we have two people and there’s a buyer and there’s a seller and imagine they are buying an asset imagine they’re buying shares um in the company that sells these whiteboard pens

and imagine they say okay um this buyer says you know what i

wouldn’t mind buying some shares in this company i’d like to buy a hundred shares um but i’m only going to pay 17.85 maximum for them not a penny more not sent more i don’t pay any more than that that’s the maximum if i get them cheaper than fine but you know what i’m prepared to pay 17.85 great now you’ve got a seller for whatever reason wants to sell you this what makes a market guys one person wants to buy one person wants to sell fortunately there’s a lot of flow of these people that’s causing the market to move causes transactions take place means that we can trade and take advantage of these differences between buyers and sellers but i digress this seller comes along and says hey i want to sell my shares i’ve got 100 shares to sell

however i’m going to only take 17.86 minimum now i’m going to take 17.85 not 1784.

17.86 is the minimum

that i will take the lowest i will go so we don’t have a transaction here you know we have a point where we’ve got a buy wing to buy a seller willing to sell 1785 is his highest price 1786 is his lowest price there’s no deal now if someone comes along

and says you know what that seems like a good price i’ll take it

um i’ll i’ll sell you my shares for 17.85 then a transaction is taking place and that comes through as a trade and we see that happen uh on your price chart if the price moves that’s how we get these candles formed okay so

assume let’s go back to the initial example we’ve now got

our bio 1785 seller 86 the best bid and if we’re talking about stock exchange let’s keep it simple for now a centralized exchange where everyone comes into tranzact slightly different in the forex market but if we’re talking about stock exchange nyse nasdaq

foots etcetera these are exchanges that are paid is where you pay exchange if you want to do a transaction to kind of ensure um the credit worthiness of all the individuals and your counterparty and they act as a kind of central point where everyone trades now for this particular stock of this whiteboard pen uh whatever the company may be a hypothetical company

this is the current price so the highest price

that anybody at that moment in time is prepared to pay

and has put that order in will be the bid and that’s the best

bid and the highest price or the lowest price should i say that someone’s willing to sell out

of that asset that particular time is the ask the best ask and so we have the bid

at 1785 we have the ask at 1786.

difference between the two

is the spread now if someone comes along uh unless you come along and you go you know what i’m going to buy something this is going to explode this is going to be kind of 20 bucks in no time you might come along and take those 100 shares from this seller on the order book at 1786.

all of a sudden now that 1786 has gone and the next price available might well be

1789 say okay let’s say someone else who’s selling number two

let’s say you’ve got a seller here seller number two i won’t kind of write it all out but let’s say he says that but he says i’m not willing to pay i don’t want to let him go for any less than 1789. he now would be the best ask because someone’s taken that best ass there at 1786 we’ve come along we decided it’s a great great buy and now the best bid is 17.85 the best ask is 17.89 and again someone could come in and the third celica come in and say you know i’d take 1786 come back in put their order back in the order book at 1786 well that would be the ask now now that’s a centralized exchange very quickly if you’re trading via a cfd broker or spread bet broker and check out our channel sponsor guys if you’re interested in a new broker link in the description below but if you’re trading with them then this almost doesn’t apply because we’re just taking the price that they offer if we’re not trading directly on the underlying market sometimes we may choose to do that by the nyc via the nasdaq and you have a broker that allows us access that accordingly but assume we’re trading cfd or spread bet you know this will just be on the order ticket so the ask is there

but is there now if we want to buy the only options we have

are to hit the ask or to place a limit order in

but then to get filled on the limit order the ask would have to move down the whole price would have to move down and the bid would have to become 86.

that would be

when people are selling and selling or causing the price to go lower so when we’re just taking um the price that’s offered the bid is the price that we can sell at the ask is the price

that we can buy at a moment in time if we can put a limit order in if we to wait that bit in the ask will change and of course as transactions take place let’s say someone buys the 80s 60s

someone buys the 89 it’s by then says organelle what’s running away from me i’m prepared to pay a little bit more i prepared to pay 88 all of a sudden we might get a situation where it goes you know 1788 to 1789 and that’s where we see the price move on our chart and imagine that with many many participants over whatever period of time we’re looking for you can see the price go up and down and up and down as browsers and sellers are transacting but it’s always going to be a best bid there’s always going to be a best task in the uk we call it an offer bid an offer that means the price you can buy at is the ask or the offer

the price that you can sell out is gonna be the bid all right guys hope that’s helped you like this kind of stuff thumbs up appreciate as is your subscription take care see you next time bye-bye you

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