When a futures contract price is quoted you actually get a quote of two prices: the bid price is the price best current offer to buy(best usually meaning highest in this case), and the ask price is best current offer to sell(best usually meaning lowest in this case). The bid is generally lower than the ask. Lets say I want to buy 1 May corn contract at 234 and some one wants to sell said contract at 234 1/4. What happens to the trade? Well there is no trade as myself, the buyer, and the seller don't agree on the price, either I have to buy at 234 ¼ (seller is asking that price for Corn) or the seller has to sell at 234 (I am bidding that price for Corn) for any deal to be struck. When the bid and ask meet a trade is made and this is the price we see on our quote screens (remember at this point bid and ask meet on price and number of contracts). This is how a market moves, it isn't the amount of buyers or sellers BUT.. the willingness of the buyers to pay the ask(ing) price or the sellers to receive the bid(ding) price. This is very basic stuff but so important to know when trading. Many people believe a market goes up because there are more buyers than sellers in the market, but this isn’t the case it’s just that the buyers are more agresive and are willing to offer higher bid prices and therefore pay a higher ask price. We can use the knowledge of bid/ask to understand better why prices go up and down the way they do.
I hope this is uesful.
Cheers,
Dan
I hope this is uesful.
Cheers,
Dan
