In one of the posts I wrote on this web: How to Buy Stocks Online, I presented a guide to you on how to buy and sell stocks through online stock software provided by every securities company. In the Buy and Sell view, you will see the Bid and Offer. When you want to buy or sell shares, all your buying and selling decisions will definitely be based on Bid and Offer.
What exactly are bids and offers?
If translated: Bid = demand, offer = offer. So actually, bid and offer show the system of demand and supply (demand and supply) of buying and selling in stock trading. The meeting of buyers and sellers in the stock market can occur because of bids and offers. Bid and offer show the process of a transaction between buyers and sellers in the stock market. The role of the bid offer is very important for you to know.
So when can my share purchase order be dealt with by the seller? Then where can the queue system for buying and selling shares come from? This is what I will thoroughly peel to the end in this post.
First of all, to understand the analogy of the stock trading queue system, you must understand the process of buying and selling transactions in the stock market. If I may equate, transactions in the capital market are actually the same as buying and selling transactions carried out in traditional markets.
Huh?
I repeat again: Buying and selling transactions in the stock market are logically the same as transactions that occur in traditional markets. Where there will be a price bargaining. If you can understand traditional markets, especially those of you who often shop there, then you should be able to understand the logic of buying and selling systems in the stock market more easily.
REMEMBER THE LAW OF MARKET DEMAND AND SUPPLY:
If demand > supply --> the price of goods (stocks) will increase.
If supply > demand --> the price of goods (stocks) will fall.
This law of supply and demand will be my basis in explaining the logic of bid-offers in the stock market. So, you need to understand the concept before I go deeper.
Okay, before understanding more about supply and demand transactions in the stock market, it's a good idea to understand the following terms, because these vocabularies will be widely used in the following discussion.
Split: The number of people who place orders (buy and sell orders) in the queue at a certain price.
Bid lots: The number of lots (stock trading unit, 1 lot = 100 shares) purchased by the buyer.
Offer lots: The number of selling lots requested by the seller.
Bid price: Purchase price
Offer price: Selling price
Supply and demand (bid-offer) in the stock market
Transactions in the capital market can only occur as in real world buying and selling transactions if there are parties who buy (Bid) and parties who sell (Offer). Try to imagine again how transactions in traditional markets occur. The logic is the same with the stock market. The only difference is that in the stock market, buyers and sellers do not meet face to face (face to face). Moreover, almost all stock transaction systems are now done online, so you can make stock transactions from home without meeting the buyer/seller directly.
Stock buying and selling transactions are highly dependent on two main things, namely time priority and price priority.
What is price priority and time priority? What is the logic of trading in the stock market, to create a transaction mechanism? Please refer to the next post: Bid-Offer in the Stock Market - Part II. Also read the post: The Uses of Observing the Bid-Offer Queue System in the Stock Market.
