SIE: Bid And Ask Spread

Bid and Ask Spread

Recall that a dealer is a firm or individual that trades out of its own inventory, as opposed to a broker, who is merely an intermediary between a buyer and a seller. When a dealer wishes to buy a security, it will post a bid. A bid is a price at which the dealer is willing to buy the security. If a customer decides to accept this price and sell his securities to the dealer, he will get the bid price. Thus, a dealer buys at the bid and a customer sells at the bid.

If the dealer wishes to sell a security, it will post an ask price, also called an offer. The ask/offer price is the price at which the dealer is willing to sell the security. If a customer buys this security, he will