BUY Price Definition: The price for which the bitcoin is actually sold.
Simply put, a BUY price is a BID price that matched the OFFER. The BUY price is the price at which the trade is done.
ASK Price Definition: The lowest price a potential seller will accept for a bitcoin.
What this means:
- Like most exchanges, the bitcoin exchanges list the lowest ASK price currently being offered as the exchange’s sell price.
- The ASK price will typically decrease as demand decreases.
- The ASK price is dependent on the daily trading volume.
- Often, a particular ASK price matches the ASK price of the last successful exchange sale.
- Bitcoin can be sold above the ASK price, but never below it.
Tip: Sellers are free to set their ASK price outside the norms of the existing market, but if an ASK price is way out of line with the market, the ASK will not be likely to get an immediate response.
BID Price Definition: The highest price a potential buyer will pay for a bitcoin.
What this means:
- Like the ASK price, the highest BID price currently being offered is an exchange’s buying price.
- When demand increases, typically the BID increases as well, which means that the BID is linked to the daily trading volume.
- Usually, it is preferred that the BID matches the last successful exchange sale.
- Bitcoin can be and usually are, bought below BID, but never above it.
Tip: Buyers are free to set their BID price at their discretion, but if the price strays too far from the market norms, the BID price may need to be adjusted to be useful.
OFFER Price Definition: The price at which the exchange offering the bitcoin is willing to sell the digital currency.
In the case of exchange sales, this is always the highest BID price. However, for over-the-counter or peer-to-peer sales, the OFFER price may be vastly different than the BID. High latency between trade and natural fluctuations in the market can also cause there to be a difference in the BID and OFFER prices.
Tip: An OFFER price does not include exchange fees or commissions.
Putting It All Together
As Zen pointed out, the best way to think about this is to imagine a person trying to buy a can of soda. The price for which the seller is willing to sell the soda is the ASK price. The price for which the buyer is willing to buy the soda is the BID price. Since there is no movement on the price of the soda, the OFFER price and the ASK price is the same. If the buyer and seller agree on the OFFER price, the buyer BUYs the soda at that price. Otherwise, the seller and buyer will negotiate a new OFFER price.
Understanding BID/ASK/OFFER/BUY as they relate to bitcoin will help you understand both pricing and the current risk of the market. Knowing how to “play the market,” as Zen pointed out, is the first step to becoming a successful investor who can read the market and beat the “one percent and the banks” at their own game.