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Best Bid

Best Bid
TradingTechnical AnalysisTechnical Analysis Basic Education

What Is a Best Bid?

The term "best bid" alludes to the highest quoted [rice available that someone will purchase a specific security, thus mirrors the best price that someone could sell at the market.

The best bid is the highest among all bids offered by contending market makers. Put essentially, this is the highest price an investor will pay for an asset. How bids are placed relies upon the type of security — stocks and bond bids are placed in prices and face value, separately. Investors and traders who make the best bids regularly win the order.

The best bid is supplemented by the best ask (best offer), and together they make up the national best bid and offer (NBBO).

Seeing Best Bids

Market participants place buy and sell orders when they wish to purchase securities. These orders are placed utilizing bids, which are likewise called offers. This is the price the investor will pay to obtain the asset along with the total quantity. Market creators likewise offer a price or value for which they're willing to sell the securities they hold.

The type of bid varies, contingent upon the sort of security that is available to be purchased. For example, bids for stocks, exchange-traded funds (ETFs), and other related securities are made in dollars per share. Traders who wish to purchase bonds and other fixed-income instruments, then again, make bids in light of the face value of the security.

Now and again, there might be different bids for the equivalent asset. At the point when this occurs, the best bid wins. The best bid is the highest amount of money somebody will pay to get that security. The best bid considers the price and the total number of securities that the trader will buy.

Suppose two traders need to purchase stock in Company A. To secure the purchase, they might try to outbid one another. Trader 1 might offer $10 for 20 shares or $200 while Trader 2 offers $20 for 20 shares for a total of $400. In view of this simple model, Trader 2 makes the best bid and can make the purchase.

The best bid is the supplement of the best ask for a security.

Special Considerations

The Securities and Exchange Commission (SEC) requires a rundown of the best bids and offers available on exchanges. This rundown is called the National Best Bid and Offer (NBBO) and incorporates all of the ask or bid prices that are available when traders and investors buy or sell for their customers. The NBBO guarantees that all investors receive the best conceivable price while executing trades through their broker without stressing over totaling quotes from various exchanges or market producers before setting a trade. This assists with leveling the playing field for retail traders who might not have the resources to constantly search out the best prices across various exchanges.

Active traders, short-term traders, and informal investors will frequently take a gander at Level 2 quotes that incorporate the bids as a whole and ask prices for a specific trading instrument. The NBBO list is constantly refreshed all through the trading session with the goal that customers are able to see the best available prices as they move over the course of the day.

Institutional trading desks likewise show bids and offers for blocks of stock and securities. Those bids and offers could be for customers or the actual firm. In any case, the greater part of the proprietary trading at banks and brokerages has been limited in recent years.

Illustration of a Best Bid

Say that an investor is hoping to sell an existing long position of 100 shares of XYZ Corp. The online brokerage the investor utilizes shows a quote of 25.60 (x1,000) x 25.63 (x200), This demonstrates that the best bid is presently 25.60 (and for 1,000 shares), implying that the investor can sell each of the 100 XYZ shares costing that much.

Features

  • The best bid is the highest quoted offer price among buyers of a specific security or asset.
  • The best bid and ask together make up the NBBO, which aggregates bids and offers from across exchanges.
  • The best bid addresses the highest price a seller could hope to receive from a market order.