Creepy Stock Market: bid and ask ...

Hi, welcome to this second video of the Creepy stock market series. The topic today is bid and ask. If you are familiar with investing trading, you may already know what these two terms mean. If you are not, don't worry because at the end of this video it will be clear. Now, before moving to the explanation, I would like to present a situation. Suppose, for example, that you are going to a shop because you want to buy shoes. Then you go there and then you find a pair of shoes that you really like. And then you go and there you ask the price. And what they say is, well, if you want to buy these shoes, it's hundred dollars. And then you're like, well, I think it's too expensive. So I'm willing to pay maximum $80. So what happens now? Unless the seller is willing to decrease the price or you are willing to pay more, no transaction can happen, right? Because if you want to buy at 80 and he wants to sell at 100, you need to find an agreement if you want really to buy these shoes. Now, in the stock market is exactly the same. Difference is we are not buying or selling shoes, but shares of a company. Now, the price at which you are willing to buy is called bid price. And the price at which people are willing to sell is the ask price. That's all. Bid price. I want to buy at that price. Ask. I want to sell at that price. And here you can see an example we are looking TradingView at Google. You see there are two prices, buy and sell. Okay, and what is the meaning of that? Well, this buy price is what is the bid or the ask? Actually this is the ask. Remember, usually the bid price is the lower and the ask price is the highest. Why is it the ask? Because this means if I want to buy, I have to pay this amount because this is the amount at which people are going to sell. So it's like the hundred dollars in the example of the shoes. If I want to buy the share, I need to pay this. If I want to buy the shoes, I need to pay 100. And this is called ask. But if you're willing to, if you want to sell, this is the bid price. Why? Because people are willing to buy at this price. So again, as in the example with the shoes, I was willing to buy at $80, right? So if I want to sell, I want to sell to someone who wants to buy. So I want to sell at $80. And this is exactly the same. Okay, so let's clarify these concepts so it will be even easier to remember. So first we have say that we have the bid and then we have ask. So bid is usually the lowest price and ask is the highest price. So bid is the price, as we said, at which people. Want to buy, right? And this is the price at which people want to sell. Now understand that this one, two is very important, okay? Because you want to buy your shoes at 80 and the seller want to buy, want to sell at 100. This is what they want in the ideal situation. But if they really have to do it, then they have to use the other price. Because if I really want the shoes and there is like I don't care about the price, my priority is to get the shoes, then I have to buy at hundred dollars. And if the seller really want to sell the shoes, maybe would like to sell at 100, but he must sell at the price at which some people want to buy. Okay, so let's look at an example here. So this may be clearer. Let's say there is a stock a. Okay, let's say that there are some people that want to buy say 100 shares at 80.05, okay? And maybe after that there is someone else who is willing to buy 200 shares, but he doesn't want to pay so much, maybe just 79.90. Okay, what about here? Well, let's say that someone is willing to sell 50 shares at 80 100, okay? And someone else is willing to sell 300 shares at 8300. Okay? Now as you see, the buyer that want to pay the maximum amount of money is this guy and he want to pay no more than 80.05. But these guys here, they want to sell at no less than 81. So of course there is a spread of how much? Well, as we say, the spread is the difference between these two price. So we have 0.95 spread. And usually this spread is larger when the market is closed because there is no volume, no transactions, not as much as when the market is open. So as we said, unless someone is willing to pay more or sell at less, no transaction can happen. Okay, I also want you to focus on the volume here, how many shares, because this is also important to understand how market works. Now let's assume that for example, this guy here say okay, you know what, since I'm not able to sell my shares, I want to sell at actually 80. Really? 80. 05. I'm happy with that. Okay, now what happens? Well, this guy, he wants to buy hundred shares, but this guy want to sell only 50. So depending on the type of order, if this guy Want a partial fill? He may feel he may buy 50 shares only, okay? And the other 50 shares are still there, waiting for someone else to sell. Other types of order are, unless I can complete the full transaction, then the order is not executed. So that's also important to understand because you may feel that whenever there is an agreement on the price, then the transaction happens. But actually it also depends how much you want to buy and sell. It's like, you know, I'm willing to buy shoes at $100, but I want to buy three pairs. And you only have two pairs, okay? So in some situation you may be, okay, I buy two, I'm fine, and then I look for the third pair somewhere else. Or unless I can buy three pairs, I don't do anything. So you have this option in the stock market as well. But let's say now that this guy is also willing to sell at 80.05. Okay? So what happens? There is a transaction happening here. So this guy will be able to buy 100 shares at 8005. These shares will be sold this as well. So here what is left? We have 250 shares left, okay? And so we can cancel. This is not there anymore, okay? This is not here anymore. And this is now 250 shares at 80 05. Okay? Now the spread is what? The spread is the difference between bid and ask. So the bid is now 79.90. Ask is 80.05-right? So the spread is.05. $15. And now you have to imagine that in the stock market because now everything is happening with computer. This process that I show you is super fast. You know, this transaction and volume coming in, going out and bid a spread changing is very, very fast. Okay, but that was, that was just for you to understand how it works. And then there is much more. For example, what happens if the price is going low? Maybe the broker can profit from the bid ask spread to make some money. And what happens if there are these high frequency trader that can see prices and profit from that? But this is another story. The idea here was understanding the concept first of bid and ask. So now you know that the bid is the lowest, the ask is the highest. The bid price is the price at which you want to buy, okay? And the ask is the price at which you want to sell. And you may just wait to see if the other side is coming to your direction. So a transaction can happen or you have to move in their direction. So if you want to buy and then nobody want to sell you at that price, then you have to increase your offer, right? And the second thing, remember the volume is also important because just because someone is willing to sell you at some price it doesn't mean that is willing to sell enough shares at that price. So you may have order that can be partially filled or you may have order that will not be filled until you find someone willing to sell this amount of shares. That's why it's also important to focus on stocks and ETFs that are very liquid where the volume is very high. Otherwise you may have situation where there are not enough buyer or seller and your order will be stayed there and not be filled. So with that I would like to conclude this video. Thank you again for watching. I'm sure that now the concept is a little more clear and next time you will hear about bid and ask you will know exactly what it means. And with that I would like to conclude this video and see you next time.