Calculate the Bid Ask to identify the Spread and Margin between the quoted sale price and quoted purchase price of stock and currency.

## Bid-Ask: A factor that affects the cost of stock investments

Stock investments can be very profitable when trading is done right. Various costs are involved in stock trading, such as brokerage commissions, and intra day fee. One of them is bid-ask. A bid ask spread is the difference amount between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.

The term bid ask spread, is essential for stock investors as it affects the price of sale and purchase of stocks that affects the entire stock profitability of a portfolio. A transaction occurs when a seller takes a bid price or a seller accepts the ask price.

### Factors that affect the bid-ask ratio the most

Understanding of the concept of supply and demand is essential for all investors. This is the most important factor and has a direct impact on bid-ask ratio. Supply refers to the volume of the stock that is available for sale in the stock market, whereas demand defines the willingness of a seller to buy that stock on sale.

Put simply, a security will trend upward when there are more buyers than sellers as the bidding goes higher due to increased demand. On the other hand, a security will trend lower when there are more sellers than buyers as the supply of that particular security will be higher than its demand, thus forcing sellers to lower the price asked by them.

### Type of orders

When a firm is hit by an order after placing a bid, it becomes obliged to honor the order. An investor can place several types of orders to purchase or sell the stocks:

• Limit order: A limit order is placed for the sale or purchase of a stock at a given price or better. A limit order means that the order will be filled at the same or better than a specific price level.
• Market order: A market order is placed to be filled at the market price. In other words, it is a request made by an investor to buy or sell a stock at the best available market price.
• Day order: A day order has to be filled within the same day or it gets cancelled.
• Stop order: A stop order comes into effect when a stock passes a certain level. This is called a stop loss order if it is placed to stop the loss by selling the stock when it goes below a certain level in order to stop the loss.
• Fill or kill: This type or order must be filled entirely and immediately or it gets cancelled entirely.

To calculate the spread and margin of bid-ask you can't rely on your pen paper solely; a calculator is the best way to know the margin and spread ratio. You must have just two values in hand:

• Bid Price: It's the bid value of the stock in question.
• Ask Price: It's the ask price by the seller for the same security.