How do Bid and Ask work on Intrade?

December 1, 2008 7:55 AM

How exactly does the Bid/Ask work on Intrade.com?

So last night I bought a bunch of shares of "Dow down at least 25 points by close on Monday" with my remaining play money. I was excited this morning when I saw the markets were way down. I was about to quadruple my money. But then on Intrade, no one had sold me the shares I requested. I bought them last night when there was no Ask price. Other people had bid 25 points ($2.5/share?), so I did the same.

How does that work? Do all contracts start off at 50 points when they go live? Had that one not started until opening bell?

If anyone could clarify the whole Bid/Ask thing, I would appreciate it. Intrade's help pages only talk about the bare minimum. I googled on the terms and get the general idea, but obviously I don't get it enough. I'm missing out on a huge (virtual) payday today. :-(

posted by wastelands to work & money (8 comments total)

A bid is exactly that. If you are bidding for something, you are only actually buying something if someone "hits" your bid. An "ask" is an offer, and you only sell something if someone lifts your offer. Alternately, if there was an "ask" out there, you could lift it and then it would be an actual buy for you, but you don't guarantee a trade just by bidding for something.

There's a reason there were no "asks" on that trade, no one was willing to sell there, so don't feel bad about "missing" a trade, as no one probably got anything done there.
posted by Grither at 8:09 AM on December 1, 2008

Grither: Thanks for the reply. So I'm still confused on what I should have done in that case. Should I have waited until there were some Ask prices up? Should I have Bid more, and if so, how much? It seems like operating in the dark if there's no Ask price.
posted by wastelands at 8:19 AM on December 1, 2008

At any particular time, there is a bid price and an ask price showing The bid price is the most someone is willing to pay for the stock; the ask price is the least someone is willing to sell it for.

If you put in a buy order at a price X, that corresponds to a new bid showing up at price X. If that's more than the lowest ask price, you'll buy the shares from the person who listed that low ask price. If it's not, your order will be sitting there until someone offers a lower ask price ... possibly forever.


What this all means is that when you enter an order, you don't actually conduct the transaction ('get filled' in stock-speak) until you find someone willing to sell to you at the price you were offering. If there were no asks, that means that nobody was willing to sell the shares at any price.

Note that at any time, the best bid showing will be lower than the best ask, as if they were the same, a trade could occur and the shares would get transferred. Those shares with a lot of people trading them (liquid) will tend to have a small difference between the shown bid and ask; the less popular shares will have a larger difference, because there it's tougher to find someone willing to buy/sell shares if only a few people are looking. If there were no asks, it means that the shares were either very unpopular (nobody wanted to trade them), or everyone was so sure that the dow would drop by 25 points that nobody was willing to sell the shares at any price.
posted by bsdfish at 8:20 AM on December 1, 2008 [1 favorite has favorites]

As to what you should have done -- it depends. Markets without tight bid-ask spreads are very tough to do anything good in, so quite honestly, I would suggest staying away from the market. That said, you could have put in a buy order (a bid) at a price you were comfortable paying and if someone who wanted to sell came around, they would see your bid and sell at that price. You wouldn't be guaranteed that the order goes through.

Thinly traded markets are a major problem ... unless you want to get into market-making, there isn't much you can do. This is precisely what the word 'illiquid' means and is related to the troubles that all the banks got into a while back -- even if a share is worth something in the abstract, if nobody wants to bother trading it, you can't buy/sell it.
posted by bsdfish at 8:25 AM on December 1, 2008

You're incorrect when you say you "bought". You just bid - no one was willing to sell to you at the price you bid, so you didn't buy anything. Intrade is a person-to-person market - you can't buy a contract unless there's another person willing to sell said contract to you at the price you bid.

You're also incorrect to assume that you did something wrong and could have gotten a big payday if only you'd done it right. What should you have done? It doesn't matter! The fact that there was no ask price means that no one was willing to sell at any price. Perhaps if you'd bid high enough, someone would have come along and sold at your price, but we don't know that for sure.
posted by Dec One at 9:30 AM on December 1, 2008

This is just like trying to sell an option when there's no bid, like people who are trying to sell an out-of-the-money option on expiration day and are all "why can't I get rid of my option."

If there are no asks, nobody wants to sell it, if there are no bids, nobody wants to buy it. You can post an offer or a bid, but until you're executed, it's like standing on a street corner yelling that you want X for X.
posted by mckenney at 10:01 AM on December 1, 2008

Update: Strangely enough, someone accepted my bid at one point. I don't know why. When I was eating breakfast this morning, no one had accepted. But a couple hours later, some had. Weird.
posted by wastelands at 10:06 AM on December 1, 2008

Okay, I see what happened. My bid at 25 did not go through, but my last minute bit at like 90 went through. So I saw a tiny ($84) profit from my last minute trade, but my initial trade never went through.
posted by wastelands at 3:08 PM on December 1, 2008