Bid and ask prices are two important factors at all crypto exchanges. Understanding the bid/ask price helps you get more judgment before making investment decisions.
- Bid price: The highest price a buyer is willing to accept for a digital asset (referred to as the buying price).
- Ask price: The lowest price a seller is willing to accept for each digital asset (referred to as the selling price).
- In practice, the bid price is often lower than the ask price, creating a spread known as the spread. Spread is the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to sell.
Why should you care about the bid/ask price?
The bid/ask price directly affects each of your purchases:
- From the view of individual investors: Spread can be considered as a cost you need to cover to make a transaction. Note that, in essence, this is an inevitable cost of market participants, not a transaction fee set by the exchange. Observe the bid price, ask price, and the spread before creating a buy/sell order to be more proactive about the cost of the trade you’re about to execute.
- From a supply-demand perspective of the market: The bid price represents Demand, the ask price represents Supply for an asset. You can observe the spread to gauge the liquidity of the market. The lower the spread, the higher the liquidity of that asset and vice versa.
Thus, understanding the bid/ask price helps you understand the market better and have more data before making an investment decision.
