Two-way price

A quote consisting of two prices rather than one: the bid, at which the quoting party stands ready to buy, and the ask, also called the offer, at which it stands ready to sell. Quoting both sides simultaneously is the defining obligation of a market maker, and the point of the convention is that the quote is made before the direction of the enquiry is known, which is what prevents the price being shaded once the interest is revealed.

The distance between the two sides is the spread, and it is the quoting firm's compensation for standing on both sides and for the risk of holding whatever it is left with. Its width tracks the conditions rather than any single decision: it narrows where depth is plentiful and competition among quoting firms is strong, and it widens in thin conditions, around scheduled releases and in instruments that are hard to hedge. A quote is also good for a stated size and for a moment, so the two prices on a screen describe an intention to deal rather than a standing commitment.

The consequence readers miss is that only one side of a two-way price applies to any single transaction, and it is always the less favourable one. A position bought at the ask and later sold at the bid begins its life showing a loss equal to the spread, and it has to recover that distance before it is even. This is arithmetic rather than a cost that appears on a statement, which is exactly why it is easy to leave out of a calculation, and it is the reason a headline single price for a market is always a midpoint that nobody actually deals at.