Bid Rate

Key Takeaways

  • Bid rate is the price at which a potential buyer of an asset is willing to pay to buy it
  • Similarly, the ask price gives the minimum price at which the seller is willing to sell the security
  • The difference between the bid rate and ask rate is called the bid-ask spread

What is a Bid Rate?

Bid rate is the price at which a potential buyer of an asset is willing to pay to buy it. Similarly, the ask price gives the minimum price at which the seller is willing to sell the security. A transaction or trade occurs when both seller and buyer agree on the same price for the security which is not lower than the ask price and not greater than the bid rate.

The difference between the bid rate and ask rate is called the bid-ask spread and it is an important indicator of the liquidity of an asset. Generally, the more liquid an asset is, the less wide is the spread.

Example of Bid-Ask Quotation

If the price of a security is quoted as Rs 100/Rs101. This means that the market maker is willing to buy the security at Rs100 and is willing to sell the security at Rs 101.