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What Is Bid and How Does It Work in Forex Trading?

A bid is a term that describes an offer made by a purchaser (either a corporation or individual) to buy a specific asset. As a rule, bids are made during an auction and can be found in different types of markets including stock exchange. Besides, bids are common for other types of financial and other niches where companies are participating to win a preferable contract.

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In this article, we will have a closer look at this term as well as how it works, what types of bids may have, and how they operate inside the spread.

What Is a Bid?

A bid represents the price value at which a purchaser is ready to buy an asset, generally, security. However, it is different from the traditional retail price, as it must be also connected to an asking price, displayed by market players.

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How Does a Bid Work?

The market always keeps moving under the influence of sellers and buyers. Every participant is willing to purchase or sell a specific financial instrument. Under normal market conditions, we generally have two parties:

  1. A seller – an entity that delivers assets available for purchasing.
  2. A buyer – an individual or corporation willing to buy a specific product or service.

There are several ways for both parties to reach an agreement. They take part in live or online auctions or enter the stock market when it comes to securities. In some cases, the transaction may take place within a retail outlet depending on the bid or asset type.

Sometimes, bids are made in public (in-person or online) while some buyers prefer anonymity. In this case, their bids are placed secretly with the help of a so-called sealed process.

What Is Meant by Bid Inside the Spread?

In reference to the spread, bid and ask price appear to be reliable indicators that display the current situation with supply and demand. In other words, if the spread is narrow, it means that investors show greater interest in a chosen financial instrument and vice versa.

When it comes to stock trading, a spread reflects a traded stock price in dollars and cents. It constantly changes depending on the buyers' and sellers’ actions, who operate online or electronically.

Major Types of Bids

Apart from the stock market and Forex exchange, spreads can be of different types. They mainly depend on where the offer has been made. The most common bid types include:

  • Auction Bids – several participants can make bids simultaneously while competing for a desirable asset (property, piece of art, livestock, and any other physical good).
  • Online Bids – it works the same way as the previous type. The only difference is that all participants operate online despite the location. Wins the one with the highest bid.
  • Sealed Bids – the bidding process is different from the two ones above. All participants do not know how much the other one will bid. Each of them receives the envelope where they place a bid without displaying it. The highest bidder wins. As a rule, sealed bids are used when competing for contracts or products related to real estate and property.

No matter what type of auction one enters and what asset he or she targets a bid is a price of product participants are willing to pay.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.