What is the Bid Price? | Definition and Example


The bid price is the highest amount that a buyer is willing to pay for a financial instrument.

There are several places where a person can make a bid. It may be at any auction or simply for an asset while trading. This term states how much money the buyer is willing to shed out of his pocket to acquire any asset. Besides, it will also offer information on the number of quantities that they wish to purchase. 

Bid price in a nutshell

  • The bid price is the highest amount a buyer is willing to pay for a financial instrument.
  • Bid prices result from supply and demand; higher demand increases bids, lower demand lowers them.
  • Types of Bids: Auction bids, online bids, and sealed bids (e.g., tender bids)
  • Binary options do not have a bid price; instead, a fixed strike price determines the buy and sell, where traders predict the future prices of the assets.

What determines the bid price?

Bid and ask labels on TradingView
Bid and ask labels on TradingView

The bid price is determined by supply and demand factors. If any security’s demand is higher, the bid is always high. On the other hand, if security demand tanks, the bid price is lower. 

The bid price is an indicator on TradingView

Other instant market happenings also determine the bid price that should prevail in the market. There is not any certain place where a trader or an investor should reach to make a bid. You can do it on a live chat, online, or in any other way that deems fit for you. 

What are the different types of bids?

Usually, a trader or any person comes across three different types of bids – auction bids, online bids and sealed bids. Let’s discuss these three:

  • Auction bids – the ones that happen at any auction. 
  • Online bids – the bids that take place online through the internet. 
  • Sealed bids – these are conventional bids that come sealed in an envelope. Tender bids are an example of these kinds of bids. 

It is because of the bids that the market keeps going. Buyers and sellers constantly indulge in bid and ask prices to maintain the market volatility and keep it moving in the right direction. 

Buyers who wish to own an asset or acquire any security come up with a bid price. If the bid price satisfies the seller, they execute the deal. Otherwise, the buyers and sellers might renegotiate the deal to meet the best terms.

How does a bid price work in while trading?

While trading, a bid price is the maximum amount a buyer is willing to pay. For example, Sarah is considering buying shares from XYZ Corporation. At the moment, the price of the stock on the market is between $20 and $25. However, Sarah has set a limit and is only willing to pay up to $22 for the stock. The $22 amount she quotes represents her bid price, which is the maximum price she is willing to pay for the shares of XYZ Corporation.

Is there a bid price in Binary Options trading?

No, trading binary options has no bid price, unlike other financial markets such as stocks. The price of binary options is fixed for both buying and selling and is known as the strike price, which is the price level of the underlying asset at the time of entering the trade.

The trader predicts whether the price of the asset will be higher or lower than the strike price when the option expires. The payout is fixed in advance and is either a fixed amount of money or nothing at all, depending on whether the trader’s prediction is correct or not.

Although there is no bid price in the traditional sense, the concept of determining the entry price and predicting future price movements is still fundamental to binary options trading.

Why is the bid price important?

The bid price is an important thing to understand if you want to trade successfully. Thus, the bid price is not a very complicated term to understand. It is simply the offer a buyer makes to the seller. A bid price is nothing different from the price the buyer is willing to pay for the asset’s acquisition. However, whether to accept the bid price depends on the seller. If you want to learn more about the ask price, we have another article where we explain the definition & example of the ask price in detail.

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About the author

Marc Van Sittert
Marc Van Sittert is an experienced Binary Options Trader and coach who is originally from South Africa. He started his career in 2014 by trading old-school Binary Options online. His main focus is on short-term contracts with 60-second trades.

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