Explain the bid and ask price system when trading in stocks
What will be an ideal response?
Answer: The OTC market is a network of broker dealers who actually buy and sell various securities themselves. Since it is not an 'auction' like the organized markets are where supply and demand determine the market price, the dealers need to communicate to investors what price they are willing to trade the securities at.
The bid price is what the Dealer is willing to bid to purchase a share of stock from an investor wishing to sell their stock. They publish the bid price so that someone wishing to sell their stock can determine if they are willing to sell to the Dealer at the bid price.
The asking price is the price that the Dealer is asking for the shares that they own. They publish this price so that potential purchasers know what price they will have to pay in order to purchase the stock from the Dealer's inventory.
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