This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Ask TheStreet: Bid Bewilderment

Editor's Note: Ask TheStreet is designed to answer questions about the market, strategies and investment methods. Please email us to ask a question, but keep in mind that we cannot offer specific investment advice.


My questions are about the "bid" and "ask" prices. Is the bid what you purchase or sell a stock for? Same goes for the ask. Also, when they talk about the size of a market, what do they mean? -- J.P.

Gregg Greenberg: By definition, the "bid" is the price a buyer is willing to pay for a stock, while the "ask" is the price for which a seller is willing to sell. But an even easier way to think about the two prices, as well as the so-called "bid-ask spread," is in terms of supply and demand. Because when you get right down to it, those are the two forces that ultimately determine the price of a stock trading on an exchange.

Consider the case of fictional Nasdaq-traded stock WXYZ. In this example, let's say the bid price for WXYZ is $20 and the ask price is $20.50.

In plain English, this means that the highest price a buyer is willing to pay for WXYZ is $20. On the other side, the lowest price someone is willing to sell this stock is $20.50. The difference between the two sides is called the spread, which in this case is 50 cents.

With a 50-cent spread separating the highest bidder from the lowest seller, what will it take to bring the two sides together to create a sale?

The answer: Pressure in the form of supply and demand. And to find out how much pressure, you need to check out the "size" of the market.

Aside from just listing the bid and ask prices of a stock, an exchange also will print the size of the market. WXYZ, for instance, may have a bid size of "$20 x 200," which means that there is demand to buy 20,000 WXYZ shares if the price drops to $20.

Jumping to the other side, let's say WXYZ has an ask size of "$20.50 x 50" -- which means that there are only 5,000 shares for sale at $20.50.
1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $113.29 0.00%
FB $91.01 0.00%
GOOG $630.38 0.00%
TSLA $248.48 0.00%
YHOO $33.14 0.00%

Markets

Chart of I:DJI
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 +1.21 0.06%
NASDAQ 4,828.3250 +15.6170 0.32%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs