The BBO represents the most competitive buy and sell prices available in the market. The best bid is the highest price posted by buyers, and the best offer (or best ask) is the lowest price posted by sellers. Together, they define the tightest available market for an asset at that time.
BBO data changes constantly as new orders enter the market or existing orders are updated. It forms the basis for price discovery and is used by traders to understand real-time market conditions. The difference between the best bid and best offer is known as the bid–ask spread, which reflects liquidity and trading costs.
Exchanges and trading venues calculate BBOs from their order books. In markets with multiple exchanges, a National Best Bid and Offer (NBBO) may be created to reflect the top prices across venues. BBO information is essential for trade execution, algorithmic trading, and market analysis.
BBO data helps traders assess market depth, execution quality, and trading costs. It is fundamental for understanding the current trading environment and placing orders effectively.
Trade execution compares your order against the BBO to determine whether your order will fill immediately and at what price. Orders that match or exceed BBO levels execute faster and more efficiently.
A wide spread often indicates lower liquidity, higher uncertainty, or reduced market participation. It can increase trading costs and reduce execution efficiency.
Exchanges scan all active limit orders and select the highest-priced buy order as the best bid and the lowest-priced sell order as the best offer. These two values update whenever orders change.
A stock shows a best bid of $25.10 and a best offer of $25.12. These values represent the top prices available for immediate buying or selling, and all traders see these levels when evaluating market conditions.
