Bid and Ask Prices
The stock exchanges are the places where the actual setting of the stock prices happens. They are the places where bid and ask prices cross their ways and the exchange serves as the intermediary between the two.
So, as an educated investor you should be acquainted with the meaning of bid and ask prices.
Bid price is the price announced by the buyer at which s/he is willing to purchase a stock.
Ask price is the price announced by the seller at which s/he is willing to sell a stock.
The major role of the exchange is to coordinate the bid and ask prices of buyers and sellers. This service, of course, is not for free.
Bid and ask prices are never the same. In fact, the price announced by the seller (the ask price) is always higher than the bid price. As a result you are required to pay the ask price in case you have decided to purchase a stock and pay a higher price. On the other hand, if you decide to sell a stock you will have to receive the bid price, which is of a lower amount than the ask price.
Bid/Ask Spread
The difference between ask and bid prices is referred to as the spread. The spread goes directly to the pockets of the broker or specialist who was responsible for the stock transaction. However, the spread is also used for the paying of other fees, not only the commission of the broker.
Unless you use specific market orders, it will be almost impossible to determine the price you will get as both a buyer and seller. This is especially true for the actively traded stocks, which are characterized by their extremely dynamic nature.
Even though the bid/ask spread eats up part of your profit its avoidance is not recommended since it has proven its benefits as a working system throughout the years.
Zecco offers free stock trades, no account minimum, real time quotes, trading community, and is also insured and protected against loss by SIPC. Opening a Zecco account
| Rate this article : Low | High |
- What Investors Need to Know about Financial Analysts
- What Are Financial Analysts?
- Brokerage Account Opening: Things to Do and Remember
- Understanding Mutual Companies
- Auditing Essentials
- Introduction to Microcap Stocks
- Understanding Trade Execution
- SEC Order-Handling Rules
- Understanding Margin Calls
- Stock Market Day Trading
- How to Read Stock Tables
- Understanding After-Hours Trading
- Why Do Companies Go Public
- Don't Turn Your Stock Expenses into Stock Losses
- Price to Sales Ratio (PSR) Explanation
- Price to Earnings (P/E) Ratio Basics
- Price to Earnings Growth Ratio (PEG) Explanation
- Understanding Inventory Turnover Ratio
- Understanding Return on Equity and Return on Assets
- Price/Book Value Advantages and Disadvantages
- Importance of Current Assets and Current Liabilities
- Technical Analysis Basics
- Fundamental Analysis Technique Basics
- Technology Stock Characteristics
- Foreign Stock Characteristics
- Small Cap Stocks Characteristics
- Large Cap Stock Characteristics
- Stock Price Volatility
- Introduction to Stocks
- Stock Market Investing Basics
- Consumer Price Index Basics
- Option Basics and Types
- IPO Basics and Strategies
- Inverted Yield Curve Implications
- CPI Basics
- Earnings Season Basics
- Stock Market Movements
- Asset Allocation Basics
- Foreign Stocks Basics
- Rising Interest Rates and their Effects
- Tax-Free Investments
- Stock Tax Implications
- Value Investing Basics
- Advance Decline Ratio Basics
- Stock Price Influences
- Dividend Yield Explanation
- Book Value Explanation
- Trailing Stop Order Basics
- Stop Loss Order Fundamentals
- Newspaper and Online Stock Quotes
- Setting Stock Prices
- Stock Order Types
- Company Market Capitalization
- NYSE and Market Specialists
- Market Makers Role and Responsibilities
- Stockbroker Commission Structures
- Stock Trading Basics and Order Types
- Bid and Ask Prices
- Stock Share Types
- Stock Market Indexes and Fair Value Indications
- Stock Split Basics
- Stock Market Sectors Classification
- Federal Reserve Board (Fed) Functions and Importance
- Stock Market Cycles
- Stock Dividends Basics
- Stock Basics
- Stock Buyback Reasons
- Financial Advisor Compensation - Fees and Commission
- Types of Brokerage Accounts
- Stock Broker Categories
- Certified Financial Planner Designations
- Financial Advisor Job Description
- Discount Stock Brokers vs Full Service Brokers
- US Treasury I Bonds Basics
- Convertible Bonds Basics
- Zero Coupon Bonds Basics
- Bond Definition and Concepts
- Stock Investing Basics
- Investment Goals Planning
- Classes of Assets - Asset Class Definition
- Mutual Funds vs Individual Stocks
- Stock Investing vs. Saving