How Bid and Ask Prices Shape Your Trading Strategy

When you place a trade on any exchange, you’re interacting with two fundamental concepts: the bid and the ask. Understanding how these prices work can make a significant difference in your trading costs and execution speed.

What Do Bid and Ask Actually Mean?

Let’s break it down simply. The ask price is what sellers are demanding for their asset—it’s the minimum price they’ll accept if they want to offload their holdings. On the flip side, the bid price is what buyers are offering in the base currency for that same asset. In any order book, these two prices create a natural tension: buyers want to pay less, sellers want to receive more.

When you place a market order to buy, you’re accepting the lowest asking price currently available. If you’re selling via market order, you’ll immediately match the highest bid in the book. This happens instantly, but you take whatever price the market gives you at that moment.

The Spread: Why It Matters to Your Bottom Line

The gap between the lowest ask and the highest bid is called the spread. This seemingly small distance actually impacts your profitability. A tight spread means the market is liquid—plenty of traders are actively buying and selling, so orders move quickly with minimal price gaps. A wide spread signals fewer participants, which translates to slippage and higher costs on your trades.

Limit Orders Give You Control (But Require Patience)

If you don’t want to accept the current market price, you can place a limit sell order at a specific asking price of your choice. However, if your price isn’t the most competitive one in the order book, it won’t execute immediately. Instead, it sits in the order book, waiting for the market to move toward your price. Your order adds depth to the market but sacrifices speed for control.

The choice between market and limit orders ultimately depends on your priorities: do you value instant execution, or would you rather wait for your ideal price?