What Is Ask Price?
Whenever somebody is selling something, they need to determine the lowest price at which they’d be willing to sell. This minimum price, known as the ask price or asking price, provides important information regarding the value of an asset and the state of the market — no matter the commodity. Along with the bid price, or highest price a buyer is willing to spend on an asset, the ask price determines an asset’s bid-ask spread.
While the term “bid price” can be applied to any asset or security in the wider world of finance, in the crypto ecosystem, the term “ask price” often relates to the sale of cryptocurrencies. Sellers will determine an ask price based on the supply and demand for a particular token. Buyers will simultaneously post bids for the currency. These two activities come together to form the crux of the crypto market.
How Is Ask Price Determined?
Like most prices in a market system, the ask price for an asset depends on supply and demand. Sellers must watch the market closely before setting an ask price.
Demand fluctuates depending on the pool of buyers interested in making a particular purchase. If many buyers are eager to buy a certain asset and the supply is limited, then there’s competition and sellers can demand more compensation for their possession. If few buyers are interested, then the competition diminishes and sellers will settle for a lower price.
Supply depends on the quantity of an exclusive good that’s available for purchase. If the market is flooded with a certain asset, then it becomes easier to acquire and the price drops accordingly. If a product or asset becomes scarce, then competition for the limited supply forces the price upward,so that only those offering the highest bid price can seal the deal.
The ask price for an asset or cryptocurrency will usually correspond to these general market dynamics. While sellers can ask any price they’d like, they can’t expect to successfully sell an asset if the price is beyond what the market bears.
Ask Price vs. Bid Price
The ask price and bid price are related metrics that combine to reveal vital information about the liquidity in a crypto market. While the ask price is the amount of money a seller would accept for a crypto asset, the bid price is the amount that a buyer would be willing to pay. Both bid orders and sell orders are placed within an exchange’s order book. When a bid order’s price matches the lowest ask price, the market order is successfully filled.
The bid-ask spread is the difference between the bid price and the ask price for a given asset. In the crypto world, the bid-ask spread often represents the profit that the exchange makes off a sale.
With the bid-ask spread in mind, crypto sellers will sometimes work with exchanges to initiate bidding wars. As buyers compete to purchase a cryptocurrency, the demand rises and brings prices along with it. This is one way that sellers and exchanges collaborate to overcome the instability and volatility of many crypto markets.
Traders often use the bid-ask spread as a way to determine the total liquidity in a market. A smaller bid-ask spread shows that many traders are placing orders. This, in turn, suggests that the market is undergoing an influx of liquidity. If you’re a crypto trader who prefers liquid markets, consider making the bid-ask spread a regular part of your pre-investment research. Informed traders are usually the best traders, and it pays to take as many metrics as possible into consideration.