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buying stock, bid vs. ask???
Old 05-26-2010, 11:14 PM   #1
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buying stock, bid vs. ask???

what does "bid" and "ask" mean in reference to a stock price quote.
the stocks chart i am looking at says:
Real-time Quote (RICK) Last Price 8.99 Bid 7.81 Ask 9.65
can someone please school me on these terms?
thanks!
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Old 05-26-2010, 11:42 PM   #2
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"Bid" is what the highest buyer offers. "Ask" is the lowest price a seller wants. For thinly traded stocks, there is often a stand-off between buyers and sellers and there is no trade. "Last" is what price the last transaction occurred at.

If you come in as a buyer at the "market price", meaning willing to pay whatever "best price" you can get, you will get the lowest price that a seller wants, which is the Ask price. If you come in as a seller at the "market price", you will get the highest price that a buyer wants, which is the Bid price.

Or, you can set your own price, which means that it may not get filled at all, if no buyer or seller wants to accept your terms. In your example, if I really want to buy or sell this stock, I would set my price a bit higher or lower than the "last" price, as this is a reasonable compromise between the "ask" and "bid", which is obviously a stalemate.

In the example you posted, such a big "spread" between the bid and ask means that there are not too many buyers and sellers in this stock. For a highly liquid stock such as Intel, the spread is usually in the pennies when the market is open.
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Old 05-26-2010, 11:55 PM   #3
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There is also what is called the "market depth". In your example above, the ask is 9.65. Suppose you really want to buy this stock, and willing to pay 9.65 per share. But the seller who wants to sell at 9.65, does he have just one round lot (100 shares) or 1000, or 1 million shares? So, if you want to buy 200 shares at market price, you may find that you can get only 100 shares at that ask price of 9.65, and have to pay something higher, say 9.70 for the next 100 shares.

Active traders pay extra to their brokerage to have a higher detailed stock screen that shows this market depth. It may show that there are 200 shares offered for sale at the price of 9.65, and 300 shares at 9.67, and 100 at 9.70, and so forth.
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Old 05-27-2010, 12:41 AM   #4
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thanks NW-Bound for the solid info.
that helps me understand the market a bit better.
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Old 05-27-2010, 10:12 AM   #5
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The other thing is that the Bid-Ask can give you a sense of the direction of the stock price. A wider spread on a liquid stock indicates more price movement.
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