What is bid size (simple definition)
– Bid size is the quantity of a security that buyers are willing to purchase at a given bid price. In retail trading displays, it tells you how many shares are standing behind the highest buy price shown on your quote screen.
Key terms (short definitions)
– Bid price: the highest price a buyer currently offers.
– Ask price: the lowest price a seller is asking.
– Bid size / Ask size: the number of shares associated with the bid or ask price.
– Board lot: a standard trading unit, typically 100 shares for U.S. equities; bid/ask sizes are often quoted in these lots.
– Level 1 quote: the top-of-book data showing the best bid and best ask (with their sizes).
– Level 2 quote: deeper market data showing multiple bid and ask prices and sizes at different price levels.
– Depth of market (DOM): the stacked picture of bids and asks across price levels that indicates available liquidity and how the market might move as orders execute.
How bid size works (conceptual)
– The bid size tied to the highest bid price shows how many shares can be sold immediately at that price without moving the bid down. If you try to sell more than that size, your excess shares will execute against lower bids and therefore at lower prices.
– Comparing bid size to ask size gives a quick impression of supply versus demand at the quoted prices. Large bid sizes relative to ask sizes can indicate stronger buying interest at the current bid; the reverse suggests heavier selling interest.
– Level 2 displays list multiple bids at lower prices (and multiple asks at higher prices). That layered information helps estimate where the next liquidity sits and how much of a price impact a large trade would have.
Worked numeric example (step-by-step)
1. Level 1 shows: bid = $50, bid size = 5 (board lots). Since a board lot = 100 shares, that equals 5 × 100 = 500 shares available to buy at $50.
2. Level 2 shows another bid level: bid = $49, bid size = 10 → 10 × 100 = 1,000 shares available at $49.
3. If you want to sell 1,500 shares immediately:
– First 500 shares will sell at $50 → 500 × $50 = $25,000.
– Next 1,000 shares will sell at $49 → 1,000 × $49 = $49,000.
– Total proceeds = $25,000 + $49,000 = $74,000.
4. If you tried to sell more than 1,500 shares, your remaining shares would execute against even lower bids, causing a larger price decline.
Small checklist: what to inspect before placing a trade
– Is the quote Level 1 or Level 2? (Level 2 shows depth; Level 1 only shows the top-of-book size.)
– Bid and ask sizes at the top of book (how many shares can trade at the quoted prices).
– Cumulative size at nearby price levels (estimate the total liquidity for a block trade).
– Bid-ask spread (difference between bid and ask prices) — wider spreads imply higher cost to trade immediately.
– Time of day and typical volume patterns (opening/closing auctions and news events can change liquidity).
– Order type you plan to use (market vs. limit) and how it interacts with displayed sizes.
– If executing a very large order: whether to break it up, use an algorithmic execution, or consult a broker’s block desk.
Practical steps to reduce market impact (educational, not personalized advice)
1. Check level 2 to map cumulative liquidity across price levels.
2. Decide whether to use limit orders to control execution price or marketable limit orders to capture liquidity up to a price.
3. Consider splitting a large order into smaller chunks over time (time-slicing) to avoid sweeping down the book.
4. For very large blocks, consider execution venues and methods designed for block trades (dark pools, broker crossing networks, or algo execution), recognizing each has trade-offs in transparency and speed.
5. Reassess after partial executions — level 2 can change rapidly.
Assumptions and caveats
– This explainer assumes standard U.S. equities conventions (board lot = 100 shares) and that displayed sizes are accurate at the moment you view them. Visible sizes can be reduced or canceled in real time; some market participants use hidden or iceberg orders that do not appear fully in the displayed depth.
Further reading (reputable sources)
– U.S. Securities and Exchange Commission (SEC) — Investor Education: https://www.sec.gov/investor
– Nasdaq — Market Structure and Data: https://www.nasdaq.com/market-activity
– New York Stock Exchange (NYSE) — How the Market Works: https://www.nyse.com/markets
– Investopedia — Bid Size (general reference): https://www.investopedia.com/terms/b/bidsize.asp
Educational disclaimer
This content is for educational purposes only and does not constitute investment advice, a recommendation to buy or sell, or a comment on suitability for your personal circumstances.