Understanding the core concepts of bid, ask, and last price is essential for anyone participating in financial markets. These terms represent different aspects of an asset’s current pricing and play crucial roles in trade execution, strategy planning, and market analysis. Choosing which price to follow can significantly impact your trading outcomes.
What Are Bid, Ask, and Last Price?
Bid Price
The bid price represents the highest price a buyer is currently willing to pay for an asset. It's the best available price if you're looking to sell immediately. When you place a market sell order, you typically receive the current bid price.
Ask Price
The ask price (or offer price) is the lowest price a seller is currently willing to accept for an asset. This is the price you would pay if you placed a market buy order. The ask price is always higher than the bid price under normal market conditions.
Last Price
The last price refers to the most recent price at which a transaction was executed. This is the value you most commonly see on price charts and market data feeds. However, it may not reflect the current price you could buy or sell at, especially in fast-moving markets.
The Spread
The difference between the bid and ask prices is known as the spread. This spread represents a cost to traders and serves as compensation for market makers. Narrow spreads typically indicate high liquidity, while wider spreads suggest lower liquidity or higher volatility.
How Different Prices Affect Order Execution
Bid Price Follow Strategy
When following bid price, your orders reference the highest current buy order in the market. This approach is particularly relevant for sellers.
Take Profit Example Using Bid Price
- You purchase 1 ETH at $100 and set a take profit order at $105 (a 5% gain)
- As ETH rises in value, the bid price increases
- Your take profit order triggers when the bid price reaches $105
Stop Loss Example Using Bid Price
- You buy 1 ETH at $100 and set a stop loss at $95 (a 5% decline)
- If ETH decreases in value, the bid price drops
- Your stop loss activates when the bid price falls to $95
Ask Price Follow Strategy
When following ask price, your orders reference the lowest current sell order. This approach is most relevant for buyers.
Take Profit Example Using Ask Price
- You purchase 1 ETH at $100 and set a take profit at $105
- As ETH appreciates, the ask price increases
- Your take profit executes when the ask price reaches $105
Stop Loss Example Using Ask Price
- You buy 1 ETH at $100 and set a stop loss at $95
- If ETH declines, the ask price decreases
- Your stop loss triggers when the ask price falls to $95
Last Price Follow Strategy
Most trading charts default to displaying the last price, which updates with each new transaction. While convenient for charting, the last price doesn't always reflect current executable prices.
Think of it like selling a house: you might list it for $350,000, receive an offer of $325,000, but finally settle at $335,000. The last price ($335,000) represents the transaction result, not necessarily what buyers are currently offering or what sellers are currently asking.
The last price shows where transactions have occurred, while bid and ask prices show where transactions can occur right now. 👉 View real-time market data tools
Why Stop Orders Don't Always Trigger
Price Discrepancies
Stop orders sometimes fail to trigger even when chart prices appear to reach your specified level. This typically occurs because:
- Different price references: If your order references bid price but the chart shows last price, they may differ significantly
- Market gaps: During rapid price movements, the market may "gap" over your trigger price without actually trading at it
- Order book imbalance: The available orders at your trigger price might be insufficient to execute your trade
Example Scenario
Assume you set a stop order referencing bid price with a trigger at $50. Even if the last price spikes to $50, the highest bid might remain at $47 if no buyers have placed orders at higher prices. Someone might have executed market buys up to $50, but without corresponding limit orders at those prices, the bid price wouldn't reflect this movement.
Similarly, during price declines, the ask price might remain above the last price if sellers haven't placed orders at lower levels.
Additional Factors Affecting Order Triggers
Beyond bid/ask spread issues, several other factors can prevent order execution:
- Server latency: Exchange response times can vary from 0-4 seconds for most platforms, and up to 10 seconds for others
- Market volatility: During extreme volatility, prices can move too quickly for orders to execute at desired levels
- Liquidity constraints: In thin markets, insufficient volume at your price point may prevent order fulfillment
Frequently Asked Questions
What's the most important price for day traders?
Day traders should prioritize bid and ask prices since these represent executable prices. While last price helps track overall momentum, the bid and ask directly affect entry and exit points. Professional traders typically keep both values visible on their trading interfaces.
How does market volatility affect these prices?
During high volatility, the spread between bid and ask prices typically widens significantly. Last prices may show large jumps between transactions. In these conditions, using last price for decision-making becomes particularly problematic as it may not reflect current market reality.
Which price should I use for setting stop losses?
For sell orders, reference the bid price; for buy orders, reference the ask price. This approach ensures your orders trigger based on executable prices rather than potentially misleading last prices. 👉 Explore more risk management strategies
Why might my limit order not execute even when the price seems right?
If you place a buy limit order below the current ask price, it won't execute until the ask price drops to your specified level. Similarly, a sell limit order placed above the current bid price won't execute until the bid price rises to meet it. The last price might reach your level without the bid/ask doing so.
How can I see bid and ask prices on trading platforms?
Most professional trading platforms display bid and ask prices alongside last prices. Look for a "market depth" or "order book" section that shows current buy and sell orders arranged by price level. This information is crucial for making informed trading decisions.
Does the bid-ask spread vary by asset class?
Yes, spreads typically vary significantly across different assets. Major currency pairs often have very narrow spreads (sometimes less than 0.01%), while small-cap stocks or exotic cryptocurrencies may have much wider spreads (1% or more). Highly liquid assets generally have tighter spreads.
Conclusion
Understanding the distinctions between bid, ask, and last price is fundamental to successful trading. While last price provides a historical record of transactions, bid and ask prices represent current market opportunities. For order placement and execution, the bid and ask prices provide more reliable reference points than the last price alone.
The optimal price to follow depends on your trading objectives: use bid price for selling strategies, ask price for buying strategies, and last price primarily for chart analysis and trend identification. By aligning your order parameters with the appropriate price type, you can improve execution reliability and make more informed trading decisions.