Before we get acquainted with the bid, ask and spread, let's remember such basic terms as supply and demand. Supply is the quantity of a good that the seller wants to sell. Demand is the amount of goods which a buyer wants to buy.
Bid is the demand price, the highest price at which a buyer agrees to buy assets. In exchange practice the bid price at the current moment is usually considered the highest price at which there is a demand for purchase, at which anyone who is interested can sell their assets. Bid is opposed to ask, which is the offer price. The difference between them is called a spread.
There is an unclaimed bid - the price which is offered for the goods which are not offered for sale. In some cases, several bids result in a "bidding war," which is actually a special case of an auction.
An example of the interaction of supply and demand: Someone in Africa found one of the largest diamonds. An interested buyer found it out and offered to buy the diamond for $1 million. The miner decided to wait a couple of days to think about it. The next day the information about the diamond was reported in the news and other interested people appeared. The finder got an offer to sell the diamond for $1.1 million. This means that the previous offer of $1 million was rejected. After that, two more buyers showed up with offers of $1.2 and $1.3 million. Thus, the demand increased. The bid price is the demand price or the price at which the buyers are ready to buy the goods.
On the next day Asian miners found 10 of the same diamonds as African one, then the price and demand for the African diamond dropped, because there are several diamonds of the same type.
Types of Bids
Here are three of the most widespread types of bids:
Auction Bids. Auctions are actions for a big number of buyers, who want to buy certain assets. There can be art, properties, property tax liens, home goods, and even livestock. Nowadays, these actions can be held on-line, but usually they are personal meetings.
To win the asset buyers take a part in auctions bidding against each other on the open bidding process. They do competitive bids to offer a higher price among other buyers. The highest price bid wins the auction.
Online Bids. It is the same like traditional auctions. Bidding sites (eBay, eBid, QuiBids, etc.) create online conference rooms and buyers can make bids for chosen goods and services.
For example, a pair of designer sunglasses is offered for sale on eBay and an auction starts with the lowest price. Interested buyers can offer a bid price on the good they would like to pay until one person's bid is accepted by the seller. Usually, buyers should have accounts on these bidding sites and also, they should provide the payment card information.
Sealed Bids. In sealed-bid auctions buyers don't know what bids are offered by their competitors. Several bidders get envelopes, put their bid offers, seal them so no one bidder can offer a higher price in advance. This procedure makes the result fair. The highest bid is the winner. This type of bidding is usually applicable for contracts or real estate sales.
Main findings about Bids
A bid is a price offered by an interested party in order to buy an asset or to compete for a contract. Bids can be sealed, made personally, online or by brokers.
Auctions allow people to buy something or order services through due to bids. It is a competitive action, where two or several participants try to offer a higher price to win and get the asset. Bids can be made for a number of different things.
A good marker of the available supply and demand is the spread between bid and ask prices for certain stocks. While you may want to get the prize, the most difficult thing at an auction is to not oversell the bid.