Bid and Ask in Day Trading
The Bid is the
price at which a broker will buy your current day trading position
from you. The Ask is the price at which the broker will sell
you the position you require. The gap between the bid and the ask
depends on many and varied factors, such as how much liquidity the
instrument has, how volatile the general day trading market is,
the ratio of day trading buyers vs sellers and so on.
This is why prices you
see will have 2 numbers which you can see on your day trading computer
- for example the price of IBM might be quoted as 110 - 112. This
means that if you want to day trade IBM and want to BUY a single
share, it will cost you 112 dollars, but if you want to SELL a share,
you will only get 110 dollars for it. In the morning papers, usually
only 1 price is shown, and this is the MID price (the middle between
the bid and ask). Think of it like exchanging foreign currency when
you are abroad - when you go into a Cambio, they will give you only
£60 for your $100, but if you want to sell them that £60
back, you will be lucky to get $95.
Day trading Spread betting
companies make their living doing just this one trick, and have
wider spreads between the bid and ask than ordinary brokers, in
order to make up for the absence of commission charges. Note - the
"Best Bid" for a stock is usually taken to mean the highest price
that a day trader buyer is willing to pay for that stock at any
particular point in time. The "Best Ask" is the lowest price that
a day trader seller is willing to accept for a stock at that time.
A Bid is made up of
a Buy Limit Order that has been put into the market. An Ask is made
up of an open Sell Limit Order.