Community Submission - Author: Caner Taçoğlu
The bid price is the highest price that a particular buyer is willing to pay for a specific product or service. In the context of financial markets, it is the value buyers offer for an asset, such as a commodity, security, or cryptocurrency.
A trading order book consists of multiple bid prices (on the side of buyers) and asking prices (on the side of sellers). The highest bid price is always lower than the lowest asking price and the difference between them is referred to as a bid-ask spread.
Traders or investors that are willing to sell their assets or stock positions need to either accept one of the bid prices available on the order book (ideally, the highest one) or to set an asking price and wait until a buyer eventually bids against that value, filling the order.
In financial markets, traders have the power to decide what price they are willing to buy or sell an asset and they do so at the moment they create their order. Clearly, if the price they set is too far apart from the current market price, their order won’t be filled.
In a situation where multiple buyers are competing for an asset and start putting their bids, one after the other, we would have what is sometimes referred to as a bidding war. When a bidding war occurs, buyers replace their bids higher and higher in order to cover the bids of other competing buyers and this would probably cause the market prices for that asset to increase rapidly.