I always get confused about Bid Rate & Ask Rate…
What is Bid Rate & Ask Rate…How are they useful when we trade? Is there any importance for both of them?
What is the rate when I want to Buy, and the rate when I want to Sell? (bid or ask)
And what are Bid Qty & Sell Qty ?
Ask Rate - This is the rate at which you will buy. (if there is a seller)
Bid Rate- This is the rate at which you will sell. (if there is a buyer)
At any given time Ask Rate is always HIGHER than Bid Rate
You need to understand the working methodology behind an ELOB (Electronic Limit Order Book)
You can assume ELOB as a ledger where all the orders are collected, prioritized and sorted in electronic format.
Assume a scrip is pooled with orders
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ELOB: 9:40:05.340 time (Note: 5 seconds and 340 milliseconds), the order book contains these orders
Price Ask Qty
265.85 150
265.05 50
265.00 550
300 264.95
200 264.75
100 264.50
Bid Qty
In order to execute trade, a willing buyer and willing seller should both agree on same price.
If you see above condition, there is no match.
Best Buy Price is 264.95 (he is willing to buy to that extent, higher), This is Bid rate
Best Sell Price is 265.00 (he is willing to sell to that extent, lower), This is Ask rate.
Now assume, after seeing the Ask and Bid rates, someone sends an order Buy 620 shares at the price of 265. (Say at time 9:40:05.375 (Note 35 milliseconds later)
Now the situation in ELOB changes.
Price Ask Qty
265.85 150
265.05 50
(((620 265.00 550)))
300 264.95
200 264.75
100 264.50
Bid Qty
Now the ELOB has found a matching trade (but only matching for 550 shares) and will execute it immediately.
So 550 shares will be bought and sold by respective parties and your trading terminal will show the ticker price of 265.00 (which is nothing but last executed trade price LTP)
ELOB will now immediately change into
Price Ask Qty
265.85 150
265.05 50
70 265.00
300 264.95
200 264.75
100 264.50
Bid Qty
Note Ask rate changed from 264.95 to 265.00 now. Bid rate changed from 265.00 to 265.05
Now if a market order for buy is sent for 120 shares, then ELOB will change into
Price Ask Qty
265.85 80
70 265.00
300 264.95
200 264.75
100 264.50
Bid Qty
Now ticker moves to 265.85 from 265.00
Also note that Bid rate remains same at 265.00 while Ask rate has gone up from 265.05 to 265.85
Also, if you want to know Ask and Bid quantity, it is the sum of all shares from orders placed on that price.
Example Bid Qty 100 at 264.50 could have been made up of orders from so many people like (27+4+35+24) etc.,
These orders are prioritized based on their time of order placing (timestamp), whoever places first will get executed first (whoever placed orders in the same price range).
Its a bit lengthy but very insightful!
But I Hope you will understand now!
Cheers!
And to add Ask Qty is the quantity availabe for buying at that particular ask rate. Similarly best Bid Qty is the quantity available for selling at that particular bid price.
bid rate is a maximum price a buyer is willing to pay for a particular security while the ask price is the maximum price a seller want to receive for his stock or share.
Any trade or transaction of stock is made only if both the buyer and seller are agree with the price of that security.
Many investors take suggestions from the experts with their trading recommendations just like stock tips, stock trading calls etc in order to take suitable decision regarding buying and selling of a stock.