What Do the Bid and Ask Prices Mean in a Stock Quote?
Bid and ask prices are market terms representing supply and demandfor a stock. The bidrepresents the highest price someone is willing to pay for a share.
The ask is the lowest price where someone is willing to sell a share. The difference between bid and ask is called the spread. A stock's quoted price is the most recent sale price.
Key Takeaways
- In the stock market, the bid price represents the highest price that a buyer is willing to pay for a stock.
- The ask price is the lowest price that a seller will accept.
- The difference between the bid and ask prices is called the spread. The higher the spread, the lower the liquidity.
- A trade will only occur when someone is willing to sell the security at the bid price, or buy it at the ask price.
- Large firms called market makers quote both bid and ask prices, thereby earning a profit from the spread.
Understanding Bid and Ask Prices
To make a trade, an investor places an order with their broker. The mechanics of the trade vary depending on the type of order placed. However, the general process involves brokers submitting an offer to astock exchange. Each offer to purchase includes the number of shares requested and a proposed purchase price. The highest proposed purchase price is the bid and represents the demandside of the market for a given stock.
Each offer to sell similarly includes a quantity offered and a proposed sale price. The lowest proposed selling price is called the ask and represents the supply side of the market for a given stock. An order to buy or sell is filled if an existing ask matches an existing bid.
If no orders bridge the bid-ask spread, there will be no trades between brokers. To maintain effectively functioning markets, firms called market makers quote both bid and ask prices when no orders are crossing the spread.
The difference between the bid price and the ask price is called the spread. A high spread indicates that a stock has low liquidity.
Example of Bid and Ask Prices
Consider hypothetical Company ABC, which has a current best bid of 100 shares at $9.95 and a current best ask of 200 shares at $10.05. A trade does not occur unless a buyer meets the ask or a seller meets the bid.
Suppose an investor places a market order to buy 100 shares of Company ABC. The bid price would become $10.05, and the shares would be traded until the order is filled. Once these 100 shares trade, the bid will revert to the next highest bid order, which is $9.95 in this example.
What Does Bid and Ask Mean in Stock Trading?
In stock trading, the bid price refers to the highest price that a buyer is willing to pay for a certain security, and the ask price refers to the lowest price that a seller will accept. Both the bid and ask will change over the course of a trading day.
What Is the Difference Between the Bid and Ask Price of a Stock?
The difference between the bid and ask prices for a stock is called the spread. Generally speaking, the larger the spread, the less liquid the stock is. If the stock is especially illiquid, there is a danger that a large order could cause the price to fall due to slippage.
What Is the Difference Between the Bid and Ask Price of a Stock and the Last Price?
The last price is the execution price of the most recent trade. If a trader places a market buy or sell order, the price of that trade will become the new last price.
What Does Bid Size and Ask Size in Stocks Mean?
The bid size and ask size represent the number of stock or other securities that traders are willing to buy or sell at a certain bid price or ask price. This is usually represented in lots of 100, meaning an ask size of 4 means 400 units are available for that price. The larger the bid or ask size, the more liquidity that security has in the market.
