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investing-basics

What is a Bid Price?

Matthew Levy
Matthew Levy

A bid or bid price is the highest price a buyer is willing to pay for an asset.¹

Understanding Bid

In the context of stock trading, the bid price refers to the highest amount of money a prospective buyer is willing to spend for it.² Historically, auctions were conducted to determine the bid price. Now, an investor can place bid prices in an electronic trading platform. If a bid price coincides with the ask price offered by the seller, the trade is executed.

When the demand for an asset increases, this may lead to a bidding war, wherein two or more buyers place incrementally higher bids.

Example

Martha is selling her house for $1.4M because the housing market is hot.There are two buyers interested in purchasing Martha’s house. Buyer 1 makes an offer (Bid) of $1.45M, and Buyer 2 makes an offer (Bid) of $1.5M. This leads to a bidding war between the buyers, where ultimately Buyer 1 wins after increasing their bid to $1.55M. This bidding war benefitted Martha, as she went from only asking for $1.4M to receiving $1.55M.

Sources

1. Bid Price. Investor.gov.

2. Bid Price. Investopedia.


Please note that this article is for general informational purposes only. All examples are for illustrative purposes only. The views and opinions expressed are those of the author and do not reflect or represent the views and opinions of Alpaca. Alpaca does not recommend any specific securities or investment strategies.

All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk it does not assure a profit, or protect against loss, in a down market. There is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing.

Brokerage services are provided by Alpaca Securities LLC ("Alpaca Securities"), member FINRA/SIPC, a wholly-owned subsidiary of AlpacaDB, Inc. Technology and services are offered by AlpacaDB, Inc.

This is not an offer, solicitation of an offer, or advice to buy or sell securities, or open a brokerage account in any jurisdiction where Alpaca Securities is not registered (Alpaca is registered only in the United States).

investing-basics

Matthew Levy

Matthew Levy is a Chartered Financial Analyst (CFA) designation holder, a former portfolio manager for $600+ MM in assets, and started his own business writing financial analysis for clients worldwide