What Are Bid and Ask Price?
What are bid and ask price, and why does every stock show two prices instead of one? In the last lesson, What Is a Trading Account?, you learned that your trading account is where you place orders. Now open any stock in your broker app and look closely. You will see one number you can buy at and a slightly different number you can sell at. Those two numbers are the bid and the ask, and understanding them is the first step to understanding how a market really works.
Table of Contents
- What Are Bid and Ask Price?
- A Simple Example With Numbers
- What Is Market Depth?
- What Is the Bid-Ask Spread?
- Why the Spread Is Different for Different Stocks
- How Bid and Ask Affect Your Orders
- Common Beginner Mistakes
- Key Points to Remember
- Frequently Asked Questions
1. What Are Bid and Ask Price?
Think of a vegetable market. A buyer says, “I will pay ₹40 for this.” The seller says, “I want ₹45.” Nothing happens until one of them gives in. The stock market works the same way, only with thousands of buyers and sellers at once.
- Bid price is the highest price a buyer is currently willing to pay for a share.
- Ask price (also called the offer price) is the lowest price a seller is currently willing to accept for that share.
The bid is always lower than the ask. If a buyer’s price ever matched a seller’s price, the trade would simply happen and both prices would disappear from the screen. What remains on the screen is the gap between the two sides.
A simple way to remember it: you sell at the bid and you buy at the ask.
2. A Simple Example With Numbers
Suppose a stock shows these prices on your screen:
| Bid | Ask |
|---|---|
| ₹249.95 | ₹250.00 |
- If you want to buy right now, you pay ₹250.00 (the ask).
- If you want to sell right now, you receive ₹249.95 (the bid).
The difference, ₹0.05, is the spread. On the Indian exchanges most shares move in steps of 5 paise (₹0.05), called the tick size, so ₹0.05 is the smallest gap you can see on such a stock.
You will also see a number called the LTP (Last Traded Price). This is simply the price at which the most recent trade happened. It is a record of the past. It is not a promise that you can buy or sell at that price right now. The live bid and ask tell you what is actually available.
3. What Is Market Depth?
The bid and ask you see on the main screen are only the best prices. Behind them, more buyers and sellers are waiting at other prices. Your broker app shows this in a window called market depth (or “order book”). It usually lists the five best bids and the five best asks, each with:
- the price,
- the total quantity of shares waiting at that price,
- and the number of orders.
Example:
| Buyers (Bid) | Quantity | Sellers (Ask) | Quantity |
|---|---|---|---|
| 249.95 | 1,200 | 250.00 | 800 |
| 249.90 | 2,500 | 250.05 | 1,500 |
| 249.85 | 900 | 250.10 | 3,000 |
If a large number of shares are waiting on the buy side and fewer on the sell side, buyers are crowding the stock at that moment. Depth does not predict where the price will go, and orders can be placed or cancelled in a second, but it shows you how much supply and demand exists near the current price. You can see live bid, ask and depth for any listed share on the NSE India website or in your broker’s app.
4. What Is the Bid-Ask Spread?
The bid-ask spread is the difference between the ask and the bid.
Spread = Ask price − Bid price
In our example: ₹250.00 − ₹249.95 = ₹0.05.
The spread is a real, hidden cost of trading. If you buy at ₹250.00 and immediately sell at ₹249.95, you lose ₹0.05 per share before any brokerage or tax. That is why a trade that is “flat” on the chart can still show a small loss the moment you enter. The spread is the price of getting in and out of a stock quickly. For a fuller explanation you can read Investopedia’s guide to the bid-ask spread.
Pro Tip: Before you place any order, glance at the bid and ask, not only the LTP. If the gap looks wide for that stock, take a moment before trading it with a market order.
5. Why the Spread Is Different for Different Stocks
Not every stock has a 5 paise spread. The size of the spread mostly depends on liquidity, which means how many buyers and sellers are actively trading a stock.
- Liquid stocks (large companies that trade millions of shares a day) usually have a very tight spread, often just one tick. There are always many buyers and sellers close to each other.
- Illiquid stocks (small or rarely traded companies) can have a wide spread, sometimes several rupees. Few people are trading, so the nearest buyer and the nearest seller can be far apart.
This matters in real trading. A wide spread means a higher cost to enter and exit, and it makes it harder to get out quickly if the trade goes against you. Many beginners get attracted to cheap, thinly traded stocks without noticing that the spread alone eats into every trade. We will look at a related problem, getting a worse price than expected, in an upcoming lesson on slippage.
6. How Bid and Ask Affect Your Orders
In Order Types in Trading you learned about market, limit and stop orders. Bid and ask are exactly where those orders meet the market:
- Market buy order: executes against the sellers, so it fills at the ask price (or higher, if the quantity is large and the first ask price runs out).
- Market sell order: executes against the buyers, so it fills at the bid price (or lower).
- Limit buy order: you name your price. If your price is below the ask, your order joins the queue of bids and waits. It fills only when a seller comes down to your price.
- Limit sell order: if your price is above the bid, it joins the queue of asks and waits for a buyer.
This is why a limit order protects you on price but may never get filled, while a market order gets you in immediately but at the current best price on the other side. If you want to recall how the whole exchange matches these orders, revisit How Does the Stock Market Work?.
7. Common Beginner Mistakes
- Treating the LTP as the price you will get. The LTP is the last trade. Your fill depends on the live bid and ask.
- Ignoring the spread on illiquid stocks. A wide spread can turn a decent idea into an instant loss.
- Using market orders on thinly traded stocks. The order may fill far from the price you saw.
- Reading market depth as a guarantee. Quantities shown can disappear quickly when orders are cancelled.
- Expecting to buy at the bid. You buy at the ask. To buy at the bid you must place a limit order and wait.
8. Key Points to Remember
- The bid is the highest price buyers offer. The ask is the lowest price sellers want.
- You sell at the bid and buy at the ask.
- The spread is the gap between them and is a built-in cost of every trade.
- Liquid stocks have tight spreads. Illiquid stocks have wide ones.
- Market depth shows the best bids and asks with quantities, but it can change in a second.
- The market and limit orders you already know interact with the bid and ask in different ways.
9. Frequently Asked Questions
Why is the ask price always higher than the bid price?
Because the moment a buyer’s price matches a seller’s price, the trade executes and both prices leave the screen. What remains are buyers who offer less than any seller will accept.
Do I have to pay the spread every time I trade?
Effectively yes, when you trade with market orders. You buy at the higher ask and sell at the lower bid. With limit orders you may avoid part of it, but your order may not fill.
Is the LTP the same as the bid or ask?
No. The LTP is the price of the last completed trade. The bid and ask are the live prices waiting for the next trade. They are often close to the LTP but not the same.
What does a very wide spread tell me?
Usually that few people are trading that stock. It costs more to enter and exit, and getting out in a hurry may be difficult. Beginners are better off starting with liquid stocks.
Why did my market order fill at a different price than I saw?
Prices move every second, and if your quantity is larger than the shares available at the best price, the order uses the next price levels. This difference is called slippage, which we will cover in an upcoming lesson.
Can the bid and ask change very fast?
Yes. In active stocks they can change many times in a second. This is one reason many traders prefer limit orders in fast markets.
Where can I see market depth?
In your broker’s app or website, open the stock’s quote and look for “Market Depth” or “Order Book”. Live quotes are also available on NSE India.
Does SEBI set the bid and ask prices?
No. Prices come from real buyers and sellers placing orders on the exchange. SEBI regulates the market and protects investors, and you can read more on the SEBI Investor portal.
What to Learn Next
You now know that every trade has a hidden cost in the spread. But there is another cost you pay every single time you buy or sell, and it goes straight to your broker. In the next lesson, we explain what brokerage is, how it is charged, and how to calculate it so no charge ever surprises you.
Read “What Is Brokerage in Trading?” to see exactly what each trade costs you.
This article is for educational purposes only and does not constitute investment or trading advice. Trading in the stock market involves risk, and you can lose money. Please read our full Disclaimer before making any trading decisions.
