What is a 'Bid Size'
For example, if an investor wants to buy 200 shares of Company ABC at $10 per share, the bid size is 200 shares. A stock exchange would then quote this bid size in the hundreds, so the bid size for Company ABC would be two. If the bid size was 500 shares, the bid size quote would be five.
BREAKING DOWN 'Bid Size'Bid size is the opposite of ask size. Ask size is the amount of a security that a company is offering to sale. Bid size and ask size are thought to have a relationship, implying that that if bid sizes are higher than ask sizes, then there may be a high demand for the stock.
The bid size represents how much the market is willing to buy at the bid price. Retail investors and traders commonly sell their shares at the bid and buy at the ask. This is known as taking liquidity. When an investor places a market order to sell a stock, it is immediately sold at the inside bid price. Market makers and specialists buy on the bids and sell on the asks. They are required to provide liquidity.
Due to the multitude of fragmented exchanges and electronic communications networks (ECN), the Securities and Exchange Commission (SEC) established Regulation National Market System (NMS) in 2007. This requires all the ECNs and smaller exchanges to report the National Best Bid Offer (NBBO) to the major exchanges like Nasdaq and the New York Stock Exchange (NYSE). Brokers are required to honor the NBBO for their clients. A level 2 screen provides the depth of bids and asks which include both price and size. The highest bid price and size and lowest ask price and size is displayed at the top of the queue. This is the NBBO that is shown on level 1 quotes. From the top down, the next best bid and ask are displayed and so forth for each price level. Most traders opt for a level 2 quote feed to plan out exit strategies on positions.
Hidden and Reserve Bids
Many ECNs offer the option to bid the bid price and size, making it invisible on both level 1 and level 2 quote feeds. The purpose is to cloak the motive of the seller and keep market impact to a minimum. A reserve order shows a smaller size while secretly trying to buy a larger amount. Often, a trader may place a bid size of just 100 shares but may want to actually buy 2,000 shares, which is the reserve order. The goal is the shake out the weaker longs that may panic to exit the position based on a small bid size, which indicates fleeting demand.