What is Bid Size
The bid size represents the minimum quantity of a security an investor is willing to purchase at a specified bid price. The bid size represents how much the market is willing to buy at the bid price and one can interpret it as the aggregate market demand to buy a security. When viewing level 1 quotes, the bid size displayed is a sum of all the shares from all the orders of a particular security for that bid price. When the bid size is substantially different from the ask size, it represents a supply-and-demand imbalance that could influence the direction of security prices if executed at or above the current ask price with a large order volume.
BREAKING DOWN Bid Size
Bid size is the opposite of ask size, where the ask size is the amount of a particular security that an investor is offering to sell at a specified price. Investors interpret differences in the bid size and ask size as representing the following supply-and-demand relationship:
If bid sizes are higher than ask sizes, then there is more buying demand than selling demand for a certain security at that price. Quoted bid sizes on stock exchanges are board lots, specified unit amounts that represent a certain number of shares as defined by the exchange and can vary by the price of the security.
In the U.S. equity markets, all securities have a board lot trading unit size equal to 100 shares a lot; thus, a quoted bid size of one means there are 100 shares being bid by buyers at that specified bid price. In the U.S. options markets, the board lot trading unit size of one option contract; therefore, a quoted bid (or ask) size of one, or one board lot, means that buyers are bidding to purchase one option contract.
Level 2 Quotes
A level 2 quote screen or order book provides the depth of bids and asks, which include both price and size at every price that has an open order. The depth of bids and asks represent the health of the market demand for that security across all investors. The highest bid price and size and lowest ask price and size are displayed from the top of the queue down. The National Best Bid and Offer is the quoted bid and ask price and size shown when viewing level 1 quotes. From the top-down, the next best bid and ask are displayed for each price level at the relevant exchange. Traders and investors often like to view and analyze the level 2 quote feed to plan entry or exit strategies on positions.
For example, if a security has a quoted ask size of 100 shares at a particular ask price but an investor wants to buy 10,000 shares, the purchasing investor would want to observe the level 2 order book to understand the level of investor supply and how much the share price could move if there is a market order greater than the ask size. If the level 2 quote book shows 100 shares offered at incrementally higher ask prices, a market order to buy with a bid size of 10,000 will clear all current shares offered at the current ask price and then continue to execute the purchase order until all 10,000 shares of demand are fulfilled.
Hidden and Reserve Bids
Many electronic communications networks 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 seller's motive and minimize the market impact. 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 1,000 shares but may want to actually buy 20,000 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.