Ask is the lowest price a seller of an asset is willing to take at a particular time. The bid on the other hand represents the highest price a buyer of the same asset is willing to pay at a given time. In the stock market, the bid and ask represent how much a share of a stock can be bought or sold.
A transaction will happen after the buyer and seller agree on the price depending on the market. This means that the ask and bid prices will have to be the same for an asset to be bought or sold.
Because the stock market is big, there are people who are willing to pay the market price a share is being sold for. These people help balance and benefit the market.
The difference between the bid and ask and who benefits from it
We know that buyers have the highest amount they are willing to pay on an asset. At the same time, sellers have their own wishes on the same security. That is, they have a minimum amount they want to sell their assets for.
This difference between the bid and ask is a spread. For example, the spread will be $0.05 if the ask is $12.35 and the bid is $12.30.
Why does this difference matters and where does it go?
In the stock market, there are millions of people who set their bids on their stocks. These bids will be different from individuals. Sellers will do the same thing.
Assuming that our security is currently selling at $12.35, investors will pay exactly $12.35 if they want to acquire the stock at market value.
What about those who have an asking price that is lower than $12.35? Let’s say $12.32? The market will sell the owner’s shares and give them their ask price of $12.32
The difference between what the stock was sold for and what was being asked for it is $0.03. This difference will benefit the market. Everyone gets what they wanted and the market benefited from it.
