Bid: What It Means, How It Works, Types, and Examples (2023)

What Is a Bid?

The term bid refers to an offer made by an individual or corporation to purchase an asset. Buyers commonly make bids at auctions and in various markets, such as the stock market. Bids may also be made by companies that compete for project contracts. When a buyer makes a bid, they stipulate how much they're willing to pay for the asset along with how much they are willing to purchase.

A bid also refers to the price at which a market maker is willing to buy a security. But unlike retail buyers, market makers must also display an ask price.

Key Takeaways

  • A bid is an offer made by an investor, trader, or dealer in an effort to buy an asset or to compete for a contract.
  • The spread between the bid and the ask is a reliable indicator of supply and demand for the financial instrument.
  • Market makers are vital to the efficiency and liquidity of the marketplace.
  • Bids can be made live, online, through brokers, or through a closed bidding process.
  • Types of bids include auction bids, online bids, and sealed bids.


(Video) What is the Bid and Ask price


How a Bid Works

Buyers and sellers keep the market going. Each participant facilitates the purchase and sale of assets. Sellers are entities that provide assets for purchase. Buyers are those who want to purchase goods or services. These two parties normally come together at different venues to conduct their business, including auctions (live and online), the stock market, and retail outlets.

The bid process depends on the market through which these goods and services are sold. For instance, bids that are made at an auction may be made in person or online while investors may make bids through their brokers for securities like stocks. Some bids take place in secret, usually through a sealed process. This process allows for fair and conflict-free bidding.

In some cases, companies may make bids in order to win contracts for jobs. The bidding process involves sending out packages to interested parties. These contracts may be issued by governments or large corporations for infrastructure, construction, and other projects in a variety of different industries, such as:

  • Public safety
  • Information technology
  • Education
  • Social services
  • Consulting and management
  • Healthcare
  • Art and recreation

Inside the Spread

The spread between the bid and the ask is a reliable indicator of supply and demand for a particular financial instrument. Put simply, the greater interest on the part of the investor, the narrowerthe spread.

In stock trading, the spread constantly varies as buyers and sellers match electronically, where the size of the spread in dollars and cents reflects the price of the stock being traded. For example, a spread of 25 cents on a price of $10 equals 2.5%. But the spread shrinks to only 0.25% if the stock price jumps to $100.

In foreign exchange, the standard bid-ask spread in EUR/USD interbank quotes is between two and four pips (the price move in a given exchange) depending on both the amount being traded and the time of the day in which the trade occurs.

Spreads are typicallynarrowest during the morning in New York when the European market is simultaneously open for business. For example, a bid of 1.1015 is typically accompanied by an ask of between 1.1017 and 1.019. A standard USD/JPY bid-ask spread is 106.18 to 106.20. Currency pairs that are less actively traded tend to have wider spreads.

(Video) Market Makers (Liquidity Providers) and the Bid-Ask Spread Explained in One Minute

Many buyers make bids to procure the goods and services they seek. These may include securities (stocks, bonds, and other types of investments), commodities, currencies, or any other assets. The bid is the price of a stock for a buyer, while the ask represents the price a seller is willing to accept on the trade. The mathematical difference between the bid and the ask is known as the spread.

When completing a purchaseat the bid price, both the bid and the ask may rise to significantly higher levels for subsequent transactions, if the seller perceives a strong demand.

Market Makers

Market makers, who are often referred to as specialists, are vital to the efficiency and liquidity of the marketplace. By quoting both bid and ask prices, they step into the stock market when electronic price matching fails, which enables investors to buy or sell a security. Although specialists must always quote a price for a stock they trade, there is no restriction on the bid-ask spread.

In the foreign exchange market, interbank traders function as market makers becausethey provide a continuous stream of two-way prices to both direct counterparties and the electronic trading systems. Their spreads widen during times of market volatility and uncertainty, andunlike their counterparts in the stock market, they are not required to make a price in low-liquidity markets.

Other Types of Bids

There is more than one way to make a bid. As mentioned above, the different types of bids depend on where the offer is being made. Some of the most common types of bids are listed below.

Auction Bids

Auctions are forums that bring together multiple buyers who compete for certain assets, such as livestock, home goods, properties, property tax liens, and art. These venues are usually held in person but the rise in technology has made online auctions a reality.

(Video) What Does The Bid & Ask Mean? (Investing In The Stock Market)

Buyers who participate in auctions bid against each other in order to win the asset through an open bidding process. They do so by placing competitive bids in an attempt to beat out the other buyers. The person who bids the highest amount wins the auction.

Online Bidding

Online bidding sites work just like traditional auctions. Sites like eBay, eBid, and QuiBids allow buyers to congregate in a virtual arena and make bids for products and services of their choosing.

For instance, someone may be selling a pair of designer sunglasses on eBay and starts an auction with a minimum price. Interested buyers can bid on the item with an amount they wish to pay until one person's bid is accepted by the seller. These sites normally require buyers to set up accounts and may also require payment card information.


Unlike the two types of bids noted above, participants in some venues aren't privy to how much their competitors are bidding. This is the case with sealed-bid auctions.

A sealed-bid auction happens when multiple bidders are given envelopes in which they place their bids. The envelopes are then sealed so no one bidder can knowingly outbid the other, making the outcome fair. The highest bidder is the one who wins. This type of bidding normally takes place for contracts or real estate sales.

Make sure you don't go over your maximum amount when you're bidding at an auction.

(Video) What is a bid-ask spread?

Examples of a Bid

Let's take a look at how the bidding process works using two examples.

Bidding at Sotheby's

Sotheby's is one of the world's largest marketplaces for art and luxury goods. It operates a network in 40 countries that cater to 44 different categories, including jewelry, contemporary art, and wine and spirits. The organization holds more than 600 auctions each year in person, online, and through private sales. A winning bid of $2.68 million landed a buyer an unmounted diamond weighing 50.03 carats on June 17, 2021.

A Ride on the Blue Origin

Jeff Bezos, the founder of Amazon, auctioned off a seat on his spaceship in June through a month-long bidding process. The auction, which took place live over the phone ended on June 12, 2021. The undisclosed winner bid $28 million in order to secure a place on the Blue Origin with Bezos for a sightseeing tour on July 20, 2021, from West Texas.

The Bottom Line

Bids allow individuals to purchase goods and services through auctions and other venues. It is a competitive process, wherein two or more entities try to outbid each other by raising the amount they're willing to pay in order to win the asset. You can put in bids for a number of different things, whether you want to buy property, livestock, luxury goods, art, vehicles, government contracts, or even financial instruments.

The spread between both the bid and ask price for certain securities, such as stocks, is usually a good indicator of the available supply and demand. While you may have your eyes on the prize, it's always important to make sure that you don't go over your maximum budget when you try to win.

Bid FAQs

How Do You Bid on eBay?

You can create an account or bid on eBay as a guest. The easiest way for you to make your bids is through the automated process. This allows you to enter the total amount you're willing to pay for an item. The site then bids for you in increments without going over your maximum limit. If another individual outbids you, eBay will let you know. You can decide whether you want to place a new maximum limit.

How Do You Cancel a Bid on eBay?

Buyers can retract or cancel their bids on eBay in certain circumstances. You can cancel your bid if enter the wrong amount, when the seller makes a drastic change to the item's description, or if the seller's contact information is incorrect. Bids can also be retracted if there are more than 12 hours left in the sale. If there are less than 12 hours left, you can cancel your last bid, provided you placed it less than an hour ago. If all else fails, you can contact the seller to see if they're willing to cancel your bid.

How Do You Bid on Government Contracts?

There are a few different ways to bid on government contracts. You may have to register your company with the appropriate agency or website in order to compete for these jobs. Most government contracts are open for bids through a sealed-bid process, which means you can't see how your competition is bidding.

(Video) Lecture 2020 10 14 Bid Evaluation Schemes

You can bid for the contract yourself through government bidding portals, which can often take a lot of time. You can also use a bidding service, which can provide you with information on various government contracts available in your area.

What Is an Automated Bid Strategy in Google Ads?

Google Ads has an automated bid strategy that automatically places bids on a company's advertisements based on how likely they are to receive a click by someone online. Advertisers may have different goals based on the type of ad, including increasing visits by individuals to their websites and increasing their visibility by showing ads at the top of pages within Google search results.

What Is a Bid Bond?

A bid bond is a type of investment that guarantees payment to the bondholder if the bidder fails to follow through with the beginning of the project. This provides the owner of the project with some security that the bidder will abide by the contract after they are selected and that they have the financial resources to complete the project.


What are the different types of bids? ›

Types of bids include auction bids, online bids, and sealed bids.

What are the examples of bid? ›

Example Sentences

Verb I'll bid $100 for the lamp but no higher. He plans to stop bidding if the bids go over $500. She bid for a desk and a chair.

How does the bid process work? ›

The manager sends the bid to a group of vendors for response. The vendors analyze the bid and calculate the cost at which they can complete the project. Each vendor responds to the bid with details about the products and services that are needed and the overall cost. The manager manages and analyzes the bid responses.

What are the two methods of bidding? ›

Bidding performs in two ways online: unique bidding and dynamic bidding.

What is the 3 form of bid? ›

Word forms: 3rd person singular present tense bids , present participle bidding , past tense bade , past participle bidden language note: American English sometimes uses the form bid for the past tense.

What is a 3 bid process? ›

It is a process in which three or more service or contract providers compete for a particular job or contract.

What are the 3 main components within the bid proposal? ›

Here are the key elements every bid proposal should include: Client's name and contact information. Your business name and contact information. A detailed project description.

How do you structure a bid? ›

Follow these steps to craft an effective bid proposal:
  1. Get an in-depth understanding of the project. ...
  2. Research the client. ...
  3. Evaluate the competition. ...
  4. Consider offering an additional good or service. ...
  5. Include relevant information. ...
  6. Proofread your proposal.
Oct 9, 2020

How do you answer bid questions? ›

How to Answer Tender Evaluation Questions
  1. Read ALL the documents. ...
  2. Read the Question (at least twice) ...
  3. Look at the Evaluation Criteria. ...
  4. Break it Down. ...
  5. Get Writing. ...
  6. Get Someone Else to Proof. ...
  7. Mastering Tender Evaluation Questions.
Jun 17, 2021

What are the 4 stages of the bidding process? ›

The Bidding Process
  • Step 1: Request For Proposals. owners or project teams first need to issue a request for proposal (RFP) or invitation to bid (ITB) to initiate the bidding process. ...
  • Step 2: Bid Preparation Of Interested Parties. ...
  • Step 3: Bid Evaluation And Selection. ...
  • Step 4: Contract Negotiation And Awarding.
Dec 1, 2022

What are the 3 typical selection methods for bids? ›

There are three primary methods of source selection: (1) competitive bidding, (2) non-competitive negotiation, and (3) competitive negotiation.

What are the three main stages of bid evaluation? ›

I will classify the bid evaluation process into four basic stages including (1) preliminary examination for responsiveness to formal qualification requirements, (2) evaluation for compliance with technical requirements, (3) price/financial evaluation and (4) post qualification/due diligence.

What are the 5 steps in the process of bidding? ›

The five critical steps of the bidding process
  1. Bid Solicitation.
  2. Bid Submission.
  3. Bid Selection.
  4. Contract Formation.
  5. Project Delivery.
Mar 11, 2021

Are the types of bidding process? ›

There are two types of bidding in procurement: open or competitive bidding, and closed (“sealed”) or noncompetitive bidding. Competitive bidding takes place usually through the RFx process, which is detailed below. In contrast, some companies will also use noncompetitive bidding.

What is 2 stage bidding? ›

responsive first stage bid, is requested by the Purchaser to submit a second-stage technical. proposal and corresponding financial proposal, i.e., a complete, final and priced bid. These. “second stage bids” are then handled and evaluated in essentially the same manner as a. single-stage bid.

What is L1 L2 & L3 in bidding? ›

What is L1 L2 L3 in tenders? A. In a financial tender evaluation, the lowest commercial bid is marked as L1, the second lowest as L2, and so on.

What are the different types of bid bonds? ›

If a contractor defaults on its obligations, the project owner requires the bond issuer to remedy the default. Construction projects involve four types of bonds including bid bond, performance bond, materials and labor bonds, and lien bonds.

What is bid format? ›

What does a Bid Form do? Project owners and contractors can use Bid Forms to outline all the terms and conditions of a bid on a construction project. Project owners can create blank Bid Forms for all applicants to fill out, or contractors can create their own when placing a bid.

What are the keys to winning a bid? ›

But we're here to help by presenting six things your firm can do to win more bids.
  • Prioritize Value Over Cost. ...
  • Communicate Well. ...
  • Strengthen Your Brand with Custom Binders. ...
  • Go After the Right Jobs. ...
  • Create a Systematic Process. ...
  • Track Your Efforts. ...
  • The Best Bidding Strategies are Long-Term Plays.
Apr 4, 2021

What is open and close bid? ›

Bids are typically sealed and selection occurs through either an open bidding process, in which they are revealed in view of the bidders, or a closed bidding process, in which they are opened in a closed session. The process is designed to increase the competitiveness of pricing and minimize the preferential treatment.

What are the 10 factors to consider in the bid decision? ›

10 Tips For An Easy Bid / No Bid Decision Process
  • Mandatory Criteria. ...
  • Evaluation / Assessment Criteria. ...
  • Project Scope, Resources, and Timeframes. ...
  • Price. ...
  • Competitors. ...
  • Risks and Opportunities. ...
  • Contract Conditions. ...
  • Client.
Nov 27, 2020

What are the four 4 main components of a proposal? ›

Basic components of a proposal
  • Abstract/Summary. The abstract is the most important component of the proposal. ...
  • Statement of Need. What is the issue that you are addressing and why does it matter? ...
  • Project Activity, Methodology and Outcomes. ...
  • Evaluation. ...
  • Dissemination. ...
  • Budget and Continuation Funding.

Who prepares bid documents? ›

The Bidder shall prepare and submit an original of the first and second envelopes as described in ITB Clauses 12 and 13. In the event of any discrepancy between the original and the copies, the original shall prevail.

What must all bidders do before submitting a bid? ›

Before submitting proposal, each bidder shall examine carefully all documents pertaining to the work and visit the site to verify conditions under which work will be performed. All bidders must coordinate visits to the site with the owner prior to examining the existing conditions. B.

What are the best practices in bidding? ›

You always want to have a high-quality score because it just makes your bidding strategy more effective.
Quality score
  • Write better ads.
  • Refine the type of traffic you're getting by adding negative keywords.
  • Improve your landing page as always.
  • Test those bid thresholds.

What do you say when bidding? ›

Some typical filler words taught at auction schools, are "dollar bid", "now", and "will ya give me?". The typically taught chant for beginning auctioneers follows the pattern: "One dollar bid, now two, now two, will ya give me two?

What questions should you ask when preparing a bid? ›

5 Questions to Ask Before You Make a Bid Decision
  • How well do you know your customer? ...
  • How well does the customer know you? ...
  • Have you evaluated yourself? ...
  • How does this opportunity fit in your overall strategic growth plan? ...
  • How have you prepared for this opportunity?
Aug 17, 2017

How do I make my bid stand out? ›

Your Profits: How to Make Your Bid Stand Out
  1. Make Your Bid More Than a Number. ...
  2. Thoroughly Read the Scope of Work and All Bidder Instructions. ...
  3. Get Involved Early, and Stay Communicative. ...
  4. Be Knowledgeable. ...
  5. Don't Forget Logistics. ...
  6. Demonstrate Quality and Professionalism.
Mar 31, 2014

What is fixed bid and T&M bid? ›

A Time & Materials project is billed based on the number of hours worked, at the hourly, daily, or monthly fixed billing rates assigned for that project. A Fixed Bid project is billed using a flat amount, regardless of the number of hours worked.

What are the 5 main types of selection process? ›

The selection process consists of five distinct aspects:
  • Criteria development. ...
  • Application and résumé review. ...
  • Interviewing. ...
  • Test administration. ...
  • Making the offer.

What are the four methods of selection? ›

Methods of selection
  • CV. A CV is a document that applicants complete and submit alongside a job application. ...
  • Application form. An application form is completed by a potential employee when they apply for a job. ...
  • Letter of application. ...
  • Interviews. ...
  • Tests. ...
  • Group activities. ...
  • References.

What are the 4 types of project evaluation? ›

The main types of evaluation are process, impact, outcome and summative evaluation. Before you are able to measure the effectiveness of your project, you need to determine if the project is being run as intended and if it is reaching the intended audience.

How do you evaluate a bid? ›

How to carry out the bid evaluation process
  1. The role of evaluators. Firstly, take time to choose the right evaluation team for your procurement. ...
  2. Confidentiality, equality and conflicts of interest. ...
  3. Score allocation. ...
  4. Bid clarification. ...
  5. Moderation. ...
  6. Finalising the process.
Jan 17, 2022

What are the 3 parts of evaluation? ›

An evaluation system is composed of three core elements: an intervention logic, evaluation questions, and indicators.

What is the purpose of bidding? ›

The bidding process has one overriding objective: the selection, award and signing of a contract with the bidder having submitted the proposal that best meets the objectives of government and/or the best deal for users.

What is important in bidding? ›

Competitive bidding helps the buyers get the best price and contract terms for their proposals. It allows them to get the most qualified sellers of products and services while keeping costs low. They also get to work with sellers with a history of achievements and that are qualified to deliver specialized services.

Who wins in a second price bid? ›

A type of auction model in programmatic advertising, second-price auctions are where the highest bidder wins but only pays the price equal to the second-highest bid plus one cent. So if Buyer A bids 2.50 Euros and Buyer B bids 3 Euros, Buyer B would win but would only pay 2.51 Euros.

How long is a bidding cycle? ›

The bidding cycle opens at 00:01hrs on Friday morning and closes the next week at midnight (00:00hrs) on the Thursday. NO. Many people think they will be prioritised first if they bid for a property early during the advert cycle.

What is single-stage bidding? ›

Single-Stage: One-Envelope Bidding Procedure

Bidders submit bids in one envelope containing both the price proposal and the technical proposal. The envelopes are opened in public at the date and time advised in the bidding document.

What are different types of competitive bidding? ›

The three most effective formal methods of competitive bidding are the Request for Quotation (RFQ), the Request for Proposal (RFP), and the Request for Qualificatons (RQFL).

What are the 3 types of auctions that were used? ›

Live Auction: This is an auction sale where bidders participate live either by attending physically or participating through phone or the internet. Sale in lots: Auction Sale where the items are sold in lots or batches. First Lot Auction: In this type of auction, each lot is sold to the highest bidder at a time.

What does BDS stand for in bidding? ›

Bid Data Sheet (BDS); Section V. Special Conditions of Contract (SCC); Section VI. Schedule of Requirements; Section VII. Technical Specifications, and Section IX.

What does L1 bidder mean? ›

More Definitions of L1

L1 bid means the lowest tender or lowest bid or lowest quotation received in a tender, bidding process or other procurement solicitation as adjudged in the evaluation process as per the tender or other procurement solicitation.

What is difference between L1 L2 L3? ›

The main difference between L1 L2 and L3 cache is that L1 cache is the fastest cache memory and L3 cache is the slowest cache memory while L2 cache is slower than L1 cache but faster than L3 cache. Cache is a fast memory in the computer. It holds frequently used data by the CPU.


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