We have changed our privacy policy. In addition, we use cookies on our website for various purposes. By continuing on our website, you consent to our use of cookies. You can learn about our practices by reading our privacy policy.


Bid Bond

  

If you own a construction company and are bidding for a large project, you might be required to put up what's called a bid bond. This debt instrument makes sure that you will follow through on your bid if you happen to win the job.

Think about it like putting up a bond when you're bailed out of jail. If you run away before your trial date, the court will keep the bond. You're out the money that went into the bond. It's a way to guarantee you'll...show up.

The bid bond has the same basic function. Instead of just throwing out nonsense bids and wasting people's time, the bid bond ensures that your bid is accurate, and that you will move ahead with the project if you win the contract.

Related or Semi-related Video

Finance: What is Spread?48 Views

00:00

finance a la shmoop. what is spread? before we start just no. get your mind

00:08

out of the gutter. spread refers to the money value between [100 dollar bill]

00:11

a bid and ask price under a market maker structure of trading securities. no more

00:21

wire hangers, a plastic hanger company is publicly traded on an exchange like

00:27

Nasdaq where buyers bid for a price to purchase and sellers ask for a price to [Nasdaq wall shown]

00:34

trade. no more wire hangers is bid this moment at 37:23 a share by buyers

00:39

willing to buy right now at that price and is being asked at this moment at a

00:45

price of 37.31. note the eight cents a shared difference in the share prices.

00:50

that dif is the spread between the two prices, and it's worth noting that in [bread is buttered]

00:55

extremely volatile stocks, the spread widens. and in boring highly liquid

01:01

stocks which don't move much, the spread tightens or is narrower. that is on a

01:07

volatile equivalent of no more wire hangers the spread might grow to 20 or

01:11

30 cents a share whereas a boring name that pays a big dividend and the stock

01:16

never moves much we're thinking AT&T here, [man snores at a desk]

01:19

well that spread might be just three or four cents. so why grow? well because a

01:23

market maker in a volatile stock doesn't want to be caught losing money on her

01:28

inventory. if no more wire hangers suddenly gapped down to 37.10 a share [equation shown]

01:33

well it would be likely less than the average of what the market maker paid

01:38

for her quote "inventory" unquote in that stock from which he was making a market

01:42

in it. each time the shares trade the market makers dip into that spread to [woman dips cracker in butter]

01:47

pay their bills and allow them to keep doing business. so that's spread. and it's

01:51

not the type that Prince used to sing about. [man on stage]

Up Next

Finance: What is Spread To Treasuries?
3 Views

Spread to treasuries is an indication of risk associated with a given debt or bond offering.

Find other enlightening terms in Shmoop Finance Genius Bar(f)