Why do investors need to understand Bid-Offer? Gain a deep understanding of buy and sell prices

Things to Know Before Your First Trade: What Are Bid-Offer?

Trading in the stock market may seem easy, but what if you press buy and the price isn’t what you expected? Most of the time, it’s because beginners don’t truly understand Bid-Offer.

In each trading session, the market has two prices:

• Bid (Buy Offer Price) is the highest amount a buyer is willing to pay to acquire the security
• Offer (Sell Offer Price) is the lowest amount a seller is willing to accept to sell the security

Why are there two prices? Because the goals of buyers and sellers are different. Buyers want to pay less, sellers want to sell at a higher price. This difference creates a gap between the two prices.

What is Bid? Understanding from the Buyer’s Perspective

When you want to sell a security you hold, you need to know “Who is willing to pay me?” The answer lies in the Bid price.

The Bid price shows the market’s appetite for that security:

• If the security is popular, the Bid will be high (Many buyers believe in the asset)
• If it’s dull or sluggish, the Bid will be low (Buyers avoid it)

Key features of Bid:

• It signals demand volume
• It’s an estimate of the “true value” of the security from the buyer’s perspective
• It changes every second, reflecting cash flow and investor sentiment

For example: If you see the Bid price of a stock rising from 100 to 105 within a few hours, it means “the market believes more in this stock.” This confidence is reflected in the increasing Bid.

What is Offer? The Seller’s Perspective You Must Know

If Bid is the voice of buyers, Offer is the voice of sellers.

Offer (Sell Offer Price) is the “minimum price at which sellers are willing to sell the security.”

When you want to buy shares, the Offer is the price sellers want to sell at. You must pay the Offer if you want the transaction to complete immediately.

Main characteristics of Offer:

• Always higher than Bid (Sellers want buyers to pay as much as possible)
• Reflects supply (the volume of securities available for sale)
• Changes according to the flow of securities in the market

Look at a real situation: If the Offer price of a stock gradually decreases, it means “sellers are less eager to sell.” This is a positive sign because it shows sellers believe in the future of the security.

Common Misunderstandings About Bid-Offer That Need Correction

Many think Bid-Offer is just numbers on the screen, but in reality, it’s much more important:

Misconception 1: “The 173 baht price on the screen is what I will get.”

• Reality: That price is the “last traded price.” It’s not what you will get. If you buy, you pay the Offer (higher); if you sell, you get the Bid (lower).

Misconception 2: “The spread (the gap between Bid and Offer) doesn’t matter.”

• Reality: A wide spread = harder to profit. For example, if you buy at Offer 1,000 baht and sell at Bid 990 baht, you’ve already lost.

Misconception 3: “Bid-Offer is a market thing, not a broker’s.”

• Reality: The difference between Bid and Offer sometimes goes to the broker as a fee (Spread fee).

Why Do Bid-Offer Prices Change All the Time?

What information causes Bid-Offer to fluctuate?

1. Demand and supply dynamics: If more people want to buy than sell, both Bid and Offer will rise. Conversely, if more are selling than buying, both will fall.

2. News and events: Positive news pushes Bid-Offer higher; negative news pulls them lower.

3. Trading volume (Volume): When volume is high, spreads narrow (due to high liquidity); when volume is low, spreads widen.

4. Market confidence: During bear markets, sellers flee, Offer widens, Bid also widens. During bull markets, buyers come in, Bid-Offer both increase.

Basic Techniques for Reading Bid-Offer for Traders

Smart investors use Bid-Offer as a tool to gain clues. Consider different scenarios:

Scenario 1: Narrow Bid and Offer

• Meaning: There’s a trend, but no volume yet. Traders are still hesitant.
• How to interpret: Watch for volume. If bids start coming in, offers may cancel out, and prices could rise.
• Signal: The atmosphere is changing. Don’t rush in yet.

Scenario 2: Narrow Bid, Wide Offer

• Meaning: Sellers are willing to sell, but buyers are not interested.
• How to interpret: If bids keep coming in, it might be programmed or institutional players adjusting positions (cancel Offer), letting prices go up.
• Signal: Be cautious! A big move might be coming.

Scenario 3: Wide Bid, Narrow Offer

• Meaning: Buyers want to buy, sellers don’t want to sell.
• How to interpret: If bids keep coming in, the price will stay below the current Offer, and the price may stagnate.
• Signal: Usually seen at the end of a trend. Better to avoid.

Scenario 4: Wide Bid, Wide Offer

• Meaning: High volume! Everyone is trading.
• How to interpret: If this occurs at the start of a trend or during a breakout, prices may surge. If at the end of a trend, be cautious.
• Signal: The most dangerous period.

Real Example: Saving and Learning from Mistakes

Somsak decided to buy shares of Asset A. The first time, the price on the screen was 173 dollars. He thought, “Press buy for 10 shares, total 1,730 dollars.”

After the transaction, he checked the details… Huh? He paid 1,731 dollars!

He was stunned! “Are there fees?”

No, the reason is that the 173 dollars he saw was the “last” price of Asset A, but the Offer (sell price) at that moment was 173.10 dollars × 10 = 1,731 dollars, exactly.

Lesson: Value ≠ the price you get. Avoid just looking at the current price; always check Bid-Offer.

The Difference Between Bid and Offer: Detailed Comparison Table

Why Is Offer Important to Buyers?

If Bid is the push, Offer is the pull.

When buying:

• You must pay the Offer (not the on-screen price!)
• If the Offer is too high, it might be inflated; better to wait.

When selling:

• You will receive the Bid (not the on-screen price!)
• If the Bid is too low, there might be excess supply.

Spread (Spread): Hidden Cost

Spread = Offer - Bid

Example: Bid = 100 baht, Offer = 102 baht → Spread = 2 baht

A wider spread means:

• Harder to profit
• The security has low liquidity
• Fewer traders

A narrow spread means:

• Easier to profit
• The security has high liquidity
• Many traders

IBM might have a spread of $0.05, but small stocks could have 1-2 dollars.

Summary: Why Bid-Offer Is Fundamental

Bid and Offer may seem like just numbers, but they are the language of the market:

• Bid shows “how much the market demands”
• Offer shows “how much the market is willing to sell”

Deep understanding of Bid-Offer:

• Helps better timing of entry and exit
• Reduces wrong decisions
• Controls trading costs

Large-cap stocks (like Blue Chip stocks) tend to have narrow spreads because of high volume. Small-cap stocks or low-liquidity assets have wider spreads, often expressed as a percentage.

Before trading, take time to study Bid-Offer from the securities you’re interested in. Gather some data. You’ll see patterns, and once you recognize them, your trading will become smarter.