Can you explain bid and ask price in detail?
These represent the dual prices provided by a market maker, indicating the rates at which they are currently willing to buy or sell a particular asset or contract. The bid price signifies the amount at which the market maker is prepared to purchase, while the ask price reflects the rate at which they are prepared to sell. The positive variance between the ask and bid prices serves as the market maker's profit, achieved by buying low and selling high. Given the competitive nature of the market, this profit margin is typically slim, necessitating a high frequency of trades (volume) to generate substantial earnings. While wider spreads could increase profit per transaction, it would result in fewer trades compared to narrower spreads, where the profit per trade is reduced. Consequently, the market maker strives to strike a balance between these two factors – the size of the spread and the volume of trades.
