Answer:
The bid price is the minimum price that will provide your target rate of return.
Explanation:
A market maker also known as a liquidity provider refers to an individual or business firm who is saddled with the responsibility of quoting a buy or sell price for a commodity with the hope of making profit on the ask-bid price.
The bid-ask spread refers to the amount by which the bid price by a dealer is lower than the ask-price for a security or an asset in the market at a specific period of time.
The bid-ask spread exists because of the need for dealers to cover expenses and make a profit. Thus, a bid-ask spread is use in the transaction of the following items; options, future contracts, stocks, and currency pairs.
Hence, the bid-ask spread is simply the difference between the ask price and the bid price. Therefore, a bid-ask spread is a measure of the demand and supply for an asset; where demand represents the bid while supply represents the ask for an asset.
In the trading of a security, a dealer who is willing to sell an asset or securities would receive a bid price while the price at which the dealer is willing to sell his asset to another dealer (buyer) is the ask price.
A bid price can be defined as the amount of money (price) at which a market-maker (dealer) is willing to buy securities, commodities, or other assets.
This ultimately implies that, the bid price is the minimum price that will provide your target rate of return because it is the highest price a buyer is willing to pay to a market-maker (dealer) selling securities, commodities, or other assets.
