What Is Best Bid?
Best bid is the highest quoted bid for a particular security among all bids offered by competing market makers. The best bid is effectively the highest price that an investor is willing to pay for an asset. A bid is a price made by a trader, investor or other industry professional to purchase a security. The bid specifies both the price that the buyer is willing to pay and the quantity of the security that is desired. A market maker is willing to purchase a security with a bid, and willing to sell a security with an offer. Best bid is the opposite of best ask.
How a Best Bid Works
The National Best Bid and Offer (NBBO), which refers to the Securities and Exchange Commission (SEC) requirement, is a list of the currently available best bids and offers available on exchanges and are the bid and ask prices that traders and investors typically see. They are required by the SEC to be the best bid and ask prices available to customers. Active traders, short-term traders and day traders often study Level 2 quotes that include all of the bids and asks for a particular trading instrument. The NBBO list is continually updated throughout the trading session so that customers have the ability to see the best available prices as they move throughout the day.
Institutional trading desks also show bids and offers for blocks of stock and securities. Those bids and offers could be on behalf of customers or the firm itself. However, most of the proprietary trading at banks and brokerages have been limited in recent years.