【Bid？】Understand the price fluctuation mechanism!【Ask？】Technical analysis basics course #2
Hello! I’m Trader SAKU.
Previous article discussed the theme of “Supply and Demand,”
this time we’ll go a bit deeper into how those demand and supply affect price movements
“Bid” and“Ask” are linked together. Let’s break it down!
In the latter part of the article, we’ve included a more in-depth explanation of the previous “Supply and Demand,”
so for understanding market price movements, that section is also worth checking out!
Bid and Ask are the “buyback price” and “selling price” of a shop
First, let’s organize the meanings of the terms with a very familiar analogy.
The world of FX (Forex) has the same structure as when you visit a “local brand buy/sell shop” in your city.
The two prices shown on the order screen (for example USD/JPY) are the prices from the shop (the market) viewpoint as follows.
・Bid (bid / selling price):
The price at which the shop will buy from you.
(When you want to “sell” dollars, you are bought at this price)
→ It’s the price tag on the buy side (buy order) from the shop’s perspective.
※From your perspective Bid is the price to sell the product, but from the shop’s perspective it is the price at which they buy the product.
・Ask (ask / buying price):
The shop’s price to sell to you.
(When you want to “buy” dollars, you are sold at this price)
→ It’s the price tag on the sell side (sell orders) from the shop’s perspective.
※From your perspective Ask is the price to buy the product, but from the shop’s perspective it is the selling price of the product.
Shops are not volunteers, so they always profit by buying cheaper (Bid) and selling higher (Ask). Therefore, it is alwaysBid ＜ Ask, and this price gap is called the spread(something like a fee).
Why do prices move? Two order methods
Now we get to the main point.
Why do Bid and Ask move so rapidly?
Because the clash between the market participants’ “buy orders” and “sell orders” happens.
There are two main types of orders:“market orders” (want to trade now at the current price) “limit orders” (want to wait and set a price).
This is the engine that moves prices.
As a premise,the market for buying and selling always needs the same number of sellers and buyers
There are sellers so products can be bought, and buyers so products can be sold. You might think this is obvious, but it is extremely important.
・In the world’s biggest “ticket resale marketplace”
Imagine a square where tickets for a highly popular artist are bought and sold.
In the center of the square is a board (the order book) displaying everyone’s waiting orders.
Current board state
【Ask (the line of people who want to sell）】
People who want to sell at 150.03 yen (10 tickets)
People who want to sell at 150.02 yen (5 tickets)
People who want to sell at 150.01 yen (3 tickets) ← the cheapest selling price (best Ask)
--- (There’s a wall here) ---
【Bid (the line of people who want to buy）】
People who want to buy at 150.00 yen (4 tickets) ← the highest buy price (best Bid)
People who want to buy at 149.99 yen (8 tickets)
People who want to buy at 149.98 yen (12 tickets)
The current price isBid: 150.00 / Ask: 150.01. Let’s see how the price moves from this state.
・Mechanism for the price to rise (buy orders win)
A crowd of buyers who want the tickets immediately (a “mass purchase” rush) arrives at the square,
and they place an order like “I’ll buy 10 tickets right now, no matter the price!” (a strong buy order).
This buy order immediately purchases the cheapest available seller (Ask: 150.01 yen for 3 tickets).
But that still leaves 7 tickets needed.
Next, they buy out the next cheapest seller (150.02 yen for 5 tickets) as well. Still 2 tickets short.
Finally, they buy 2 more from the seller at 150.03 yen, and the order is fulfilled.
【Result?】
Since all sellers at 150.01 and 150.02 yen disappeared, the next cheapest selling price (Ask) jumps to 150.03 yen.
Seeing the sellers become aggressive (high prices), the line of buyers (Bid) is dragged up as well to 150.02 yen.
In other words, the “immediate buy orders” consume the wall of Ask in front of them, pushing the price upward.
・Mechanism for the price to fall (sell orders win)
Conversely, a wave of people who want to dump the tickets (know as immediate selling) places an order like “I’ll sell 10 now, no matter the price!” (a strong sell order).
This sell order is instantly hit by the highest bidder (Bid: 150.00 yen for 4 tickets).
Since there are still 6 tickets left, they forcefully sell to those waiting at 149.99 yen (8 tickets).
【Result?】
The kind buyers at 150.00 yen are gone, and the 149.99 yen window is running low. As a result, the next highest buy price (Bid) drops to 149.99 yen.
In other words, when there are immediate sell orders, they push down the Bid (the buy floor) and the price falls.
Exchange rates (Bid and Ask) move not because of the economic news itself, but
because the people and AIs who react to that news press the buy orders immediately (breaking the Ask wall),orbecause they press in sell orders immediately (breaking the Bid floor).
These are the results of physical quantity battles.
Ask keeps rising:Buy orders are devouring the waiting sell orders and pushing upward.
Bid keeps falling:Sell orders are crushing the waiting buy orders and pushing downward.
This “wall-to-wall” struggle repeats thousands of times per second among computers around the world, and that is the essence of FX price movements!
※ Supplement to the previous article
In the previous article,
[When prices rise, it means the bulls are stronger — more buyers — higher demand; when prices fall, the bears are stronger — more sellers — higher supply.
※ This isn’t perfectly accurate, but I’m prioritizing clarity for now. I’ll explain what’s a bit off in future articles, so for now just grasp the gist.]
I wrote that, but more precisely, it’s not that there are more buyers, but that buy orders are larger in quantity, and there are enough sell orders to respond to them, which pushes prices up.
And “demand” being high means there are enough Ask (sell walls, sale limit orders) to meet those buy orders.
In the prior ticket resale example, to meet the demand of buying 10 tickets, the price had to rise to 150.03 yen to fill supply.
The same applies to selling: it’s not that there are more sellers per se, but that sell orders are large, and there are enough buy orders (to buy) that respond to them to push prices down.
And supply being high means there are enough Bid (buy walls, buy limit orders) to respond to them.
In the same ticket resale example, to meet the supply of selling 10 tickets, the price had to fall to 149.99 yen.
Moreover, “limit orders” help cap price rises and falls, but actual price movements occur mainly due to “market orders.”
※ By the way, there is also “stop orders,” which are effectively market orders with a trigger like “sell if price drops below this” or “buy if price rises above this.”
A stop-loss order for a long position triggers a market sell when the set price is reached.
These points can be a bit complex, but they’re incredibly important for understanding price movement.
（Note: The content from here is not very beginner-friendly。）
For example, when considering a move from a rise to a pullback, in rising markets, buy orders are naturally large, but the price doesn’t rise too much because there is enough selling to absorb it. When the rise stops, the buying orders are absorbed by selling orders.
If the pullback is shallow, selling pressure is briefly higher, but the upward trend remains strong, and a new wave of buying comes in even after a small dip.
In other words, this pullback is not Bear’s strong selling, but rather profit-taking by the Bulls who had been buying; a slight drop followed by more buying suggests the overall uptrend remains intact (considering volume as well).
Understanding this balance between supply and demand makes chart price movements more interesting!
Next time we’ll learn about chart readings that are essential in technical analysis!
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