What is Bid and Ask

Definition

The bid is the highest price a buyer is willing to pay. The ask (or offer) is the lowest price a seller will accept. The difference between bid and ask is called the spread — the tighter the spread, the more liquid the stock.

Simple Explanation (Analogy)

Imagine haggling at Pasar Tanah Abang. You want a shirt and offer Rp50,000 (your bid). The seller says 'minimum Rp65,000' (the ask). If you go up to Rp60,000 and the seller comes down to Rp60,000, a deal happens. That Rp15,000 gap is the spread. In the stock market, this process happens thousands of times per second.

Indonesian Stock Example

Blue chip stocks like BBRI usually have a very tight spread, just Rp5-25. But illiquid third-tier stocks can have spreads of Rp50-100 or more. That's why buying illiquid stocks can put you at an immediate loss from the spread alone — you buy at the ask of Rp500, but can only sell at the bid of Rp450.

How to Use

• Always check the spread before ordering. If the spread is too wide (more than 1-2% of the stock price), be cautious — you're already losing before you start.
• Use limit orders at the bid price when buying for a better price; don't always default to market orders.
• Watch how the bid-ask changes after big news — spreads usually widen during market volatility.

Common Mistakes

• Always using market orders without thinking, automatically buying at the ask (the more expensive price).
• Ignoring spreads on small-cap stocks, ending up stuck because the bid is far below the purchase price.
• Confusing the last traded price with bid and ask — the last price is just a record of the previous transaction, not the price you can get now.

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After understanding this concept, apply it in tools so decisions become more objective and measurable.

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