Bid and Offer: Definition and Functions in Trading

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Bid and Offer: Definition and Functions in Trading

Are you learning about trading? Bid and offer are certainly terms that often appear when someone learns stock trading. Therefore, it is very important to understand both before engaging in buying and selling stocks, especially if you are someone who is still completely new to the world of trading. Well, here is an explanation of the meaning and function of bid and offer!

Definition of Bid and its Function

There are several definitions that are often used to describe the term bid. But basically, bids can be interpreted simply as buying queues, buying offers, or buying interest. For example, if you want to buy a certain stock by standing in line, for example, the price of that stock will appear in the bid position.


Bid can also be described as the price that has been proposed by prospective buyers when targeting certain shares. In this case, the prospective buyer will open the price for the shares he is after. The proposed price can be lower or higher than the stock price listed on the stock exchange board at that time.


For example, you want to buy stock A, which at that time per share was at the price level of Rp. 1,000. Well, you can apply for a higher price than the offer, such as Rp. 1,010. You can also ask for a price that is equal to or even lower than the stock price offered. Of course, people will generally be more interested in buying a lower price.


Prospective buyers can only win the bid if the seller opens at the same price as previously proposed. However, if it turns out that no one has opened it at the proposed price, the prospective buyer still has to queue to get the shares.


Also, in most cases, potential buyers may not get the shares they are looking for because they ask for too low a price. Usually, this happens when the stock is so high in price that the seller doesn't want to accept the low bid.


Definition of Offer and its Function

By understanding bids and offers, it will certainly make it easier for you to explore the world of trading. So, if we previously discussed bids, let's discuss more about offers. In trading, offer is also often referred to as ask.


As opposed to bid, offer is the price opened by the seller when he wants to sell his shares. The formulation is almost the same as the bid, in that the seller can submit a selling price whose value is lower or higher than the price of the stock that was opened at that time.


For example, for the offer case, you as a stock seller want to release the shares you own, which at that time were at a price level of Rp. 2,000, for example. You can open a selling price lower than that price, such as Rp.990, or sell at a higher price of Rp.2,010. Also, potential sellers can open at a price equivalent to the current stock price level, IDR 2,000.


Well, at this stage, the process is the same as when you open a bid on a particular stock. You can only sell the shares if there are potential buyers who bid at the same price. If there are none, the prospective seller must also join the queue to sell the shares he owns.


As with bids, shares sold by potential sellers may not sell at all. This generally occurs when stock prices are falling so that potential buyers are reluctant to take offers that are too high.


Also read: 7 Advantages of Trading as Your Fund Development


Conclusion

This is an explanation of the meaning and function of bid and offer in stock trading. For a simpler explanation, you can imagine this bid and offer is like the process when people make buying and selling transactions in traditional markets. For example, the buyer can bid the price opened by the seller for the item he wants to buy.


From the results of this communication, the seller and the buyer will find the agreed price for the item. If you pay attention, the process is the same as bid and offer in stock trading, right? However, communication between sellers and buyers in traditional markets occurs directly or face to face. On the other hand, potential sellers and buyers of shares often meet virtually in the stock market.


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