Bid

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Bid: Meaning, How It Works, Types, and Examples

Key takeaways
* A bid is an offer to purchase an asset at a specified price and quantity.
* The bid-ask spread (ask minus bid) reflects supply and demand and the market’s liquidity.
* Market makers quote both bid and ask prices to facilitate trading and earn the spread.
* Bids occur in many contexts: financial markets, auctions (live and online), sealed bids for contracts, and automated bidding systems.

What is a bid?

A bid is a purchaser’s stated price for buying an asset. Bids appear across markets — securities (stocks, bonds), currencies, commodities, goods at auctions, and bids submitted by companies to win contracts. When a buyer bids, they indicate how much they’re willing to pay for a specified quantity; the seller’s asking price is the price they’re willing to accept.

How bids work

Markets function because buyers and sellers interact:
* Sellers supply assets.
* Buyers submit bids to acquire them.
* Transactions occur when a bid matches (or exceeds) an ask.

Bids can be placed:
* In person (auction house, live bidding).
* By phone.
* Online (auction platforms, trading systems).
* Through brokers (for securities).
* Via sealed submission (common for government and large corporate contracts).

Contract bidding
* Public and private organizations issue solicitations with instructions for bidders.
* Many government and corporate contracts use sealed-bid processes where competing offers are hidden until submission deadlines.
* Industries that commonly use contract bidding include construction, infrastructure, public administration, healthcare, and information services.

The bid-ask spread

The spread is the difference between the bid (buy) price and the ask (sell) price. It’s a key indicator of liquidity and market interest:
* Tight (narrow) spread: active trading and general agreement on value.
* Wide spread: low liquidity or disagreement on price.

Example (stocks)
* Bid = $55.00, Ask = $55.50 → Spread = $0.50.
* Percentage spread = (Spread / Ask) × 100 = ($0.50 / $55.50) × 100 ≈ 0.9%.

Example (foreign exchange)
* FX spreads are expressed in pips. If EUR/USD is quoted 1.0859/1.0862:
* Buying euros costs 1.0862; selling receives 1.0859.
* Broker earns 3 pips on the round-trip difference.
* Major pairs like EUR/USD often have very tight spreads, especially when overlapping major market hours.

Types of bids

  1. Market-maker bids
  2. Market makers (specialists) post continuous bid and ask quotes to provide liquidity.
  3. They profit from buying at the bid and selling at the ask (the spread).

  4. In FX, interbank dealers provide two-way prices and act as market makers.

  5. Auction bids

  6. Multiple buyers compete openly; highest bid wins.

  7. Auctions can be live or online and cover goods like art, real estate, livestock, and tax liens.

  8. Online bidding

  9. Platforms (e.g., auction marketplaces) let bidders participate remotely.

  10. Automated (proxy) bidding lets the platform bid incrementally up to a buyer’s maximum without revealing that limit.

  11. Sealed bids

  12. Bidders submit confidential offers (often in sealed envelopes).
  13. The highest sealed bid typically wins; common for government contracts and some real estate sales.

Examples

Sotheby’s
* A leading auction house that runs live, online, and private sales across categories such as fine art and jewelry.
* Notable sales: Claude Monet’s Nymphéas reached $65.5 million after intense bidding; high-value collections and single lots regularly fetch multimillion-dollar bids.

Blue Origin
* A seat on a Blue Origin spaceflight sold via a month-long live phone auction; the reported winning bid was $28 million.

Practical bidding scenarios

How to bid on online auctions (e.g., eBay)
* Create an account and provide payment details.
* Use automated (proxy) bidding: enter the maximum you’ll pay; the system bids incrementally on your behalf up to that limit.
* If outbid, you can raise your maximum or stop bidding.

Cancelling a bid (common online rules)
* Platforms typically allow retraction in limited circumstances (e.g., error in amount, material change in listing, incorrect seller info).
* Time restrictions often apply; contacting the seller may also resolve retraction requests.

Bidding on government contracts
* Registration with the appropriate portal or agency may be required.
* Many government opportunities use sealed bids; strict compliance with submission rules and deadlines is essential.
* Bidding services and procurement databases can help identify opportunities.

Automated bid strategies (advertising)
* Platforms like Google Ads use automated bidding to set bid amounts based on the likelihood of achieving an advertiser’s goal (clicks, conversions, impressions).
* These systems adjust bids in real time using performance signals and campaign objectives.

Bid bonds

A bid bond guarantees that a bidder will enter into a contract if awarded and demonstrates financial capability. If the winning bidder fails to proceed, the bond compensates the project owner for the cost of awarding the contract to another bidder.

Tips for bidders

  • Set a maximum (walking-away) price before bidding and stick to it.
  • Understand auction or contract rules (refunds, retractions, deadlines).
  • For financial markets, monitor spreads and liquidity — wide spreads increase transaction costs.
  • When bidding for contracts, ensure compliance with submission requirements and provide any required bid bonds or guarantees.

Bottom line

A bid is the buyer’s offer to purchase an asset. Bidding takes many forms — from stock market orders and FX quotes to auctions and sealed contract proposals. The bid-ask spread signals liquidity and market interest, and different bidding formats require different strategies and safeguards. Establish clear limits and follow the rules of the venue to bid effectively and responsibly.