Private Market Glossary

What does bid-ask mean in stocks?

Bid-ask, often referred to as the bid-ask spread, means the range between the highest price at which an investor is willing to purchase a security (the bid) and the lowest price at which a holder is willing to sell that security (the ask).

Bid-ask definition - Forge

A better understanding of bid-ask

A bid-ask spread shows the difference between prices at that buyers and sellers are willing to trade securities. The bid price will typically be lower than the ask price. For a trade to occur in the public market, it must happen at the bid, the ask, or somewhere in between those two prices.

If there’s a wide bid-ask spread, that can indicate that there’s not a lot of liquidity and/or that investors disagree on price. A tight spread indicates that a stock generally has higher liquidity and there is greater alignment on price. Although these are general indications, there may be additional factors impacting the spread of a given security.

What role does bid-ask play in the private market?

Bid-ask spreads play a similar role in the private market to the one they do in the public market. While the bid and ask prices aren’t as transparent in the private market, these prices generally show what investors are willing to pay and what sellers are asking for a specific private company stock.

In unstable or volatile private market conditions, the bid-ask spread might widen, indicating that there’s disagreement about what private company securities should trade at.

But if the bid-ask spreads are tight, that is an indication that private market buyers and sellers are in more alignment, which might result in more liquidity.

Given the lack of widespread price disclosure of private market stock trades, private market bid-ask spreads can be several percentage points, if not double digits, apart. In contrast, in the public market, bid-ask spreads might be, say, only a couple of cents apart owing to the greater price transparency of the public market, and the role played by market-makers.

What is an example of bid-ask spread?

Suppose a stock’s highest bid is entered at $49.99 and its lowest ask is entered at $50.01, the bid-ask spread is $0.02. The stock may trade somewhere at the bid, the ask, or somewhere between the bid-ask spread.

Frequently asked questions about bid-ask spreads in trading

What is a bid and an ask?

A bid is the price a buyer is willing to pay for a security, whereas the ask is the price a seller is willing to sell a security at.

What is a bid/ask size?

A bid/ask size refers to the quantity of shares for a specific bid or ask. For example, an investor may be willing to pay up to $100 per share for 100 shares, and  $100.01 for 50 shares. Similarly, a seller may be willing to sell 500 shares at $100, and 1,000 shares at $98.

How to calculate a bid-ask spread percentage?

There are a few ways to calculate a bid-ask spread, but a relatively straightforward way to find the spread percentage is to subtract the bid price from the ask price and then divide the difference by the ask price ([Ask – Bid] ÷ Ask).

Consider a stock with a bid of $9.95 and an ask of $10. The bid-ask spread is 5 cents. The spread as a percentage is $0.05 / $10 or 0.50%.

How are bid and ask prices determined?

Bid and ask prices are determined by the price that market participants are willing to trade securities at – expressed in the terms of their orders. Market makers often play a role in setting these prices, but other investors or institutions can also influence the bid and ask prices based on what they’re willing to buy and sell securities at. However, because of the way private securities are traded, at this point there is no true “market making” in private markets.

About the Author

Jake Safane specializes in financial reporting and is a former thought leadership editor for The Economist with articles appearing in Business Insider and The Washington Post among other media outlets. Mr. Safane has received compensation from Forge Global, Inc. for authoring this article. Read more from Jake.

Learn more about bid-ask with these related articles:

Please Read These Important Legal Notices & Disclosures

The information and material presented in this article is provided for your informational purposes only and does not constitute an offer by Forge Global, Inc., Forge Securities LLC or any of its affiliates (collectively, "Forge") to sell, or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of final offering document(s) and purchase agreement and will be subject to the terms and conditions and risks delivered in such documents.

To the extent information about or defining specific terms is provided herein, Forge makes no representations as to its accuracy and has no duty to update such information. Such information is based on Forge’s experience and the meanings and connotations of terms as Forge typically uses and interprets them. Others may construe such terms differently, and you should do your own research and consult with financial, legal and tax professionals regarding any such concepts included herein.

This article does not constitute an offer to provide investment advice or service. Registered representatives of Forge Securities LLC do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services. Securities referenced in this article may be offered by Forge Securities LLC, member FINRA/SIPC.

Forge Securities LLC is a wholly owned subsidiary of Forge Global, Inc. Certain affiliates may act as principals in such transactions. Forge Data LLC is an affiliate of Forge Global, Inc. and Forge Securities LLC.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment. Past performance Is not indicative of future results.