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Jul
30

Stock Price – Bid – Ask – Spread – Liquidity

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If you are new to the world of the Stock Market, one of the first things you have to learn is how to read a stocks price.  This might seem really simple and rudimentary right? Wrong!

There is a lot to a stock’s price and when I think back all those years to when I began to learn about the stock market reading a stock price really took some thinking about. For example what is the bid price?  What is the difference between the bid and the ask?  What does “Last Price” mean?  All these questions and more will be answered in the following article.

Whats in a stock price?

Take a look at this output from Yahoo Finance.  It is a typical representation of stock price.A typical Stock Price representation

How much of it do you understand?

Stock Price : Last Trade

If a stock is currently trading, e.g. the Stock Exchange on which it is being traded is open, then you will see the Last Price.  This is the price at which the stock last changed hands from seller to buyer.  This changes often.  One important thing to note is this example is from the LSE the London Stock Exchange and stock prices here are quoted in Pence.  There are of course 100 Pence in a Pound.  This “Last Price” is not 221.50 pounds, but 221.50 pence, or approximately 2.21 GBP (Great British Pounds).  In the US stock markets prices are quoted in $ US Dollars.  So if you trade US you will see a stock price of $2.21.

Stock Price : Trade Time

This is the time at which the last share was traded.  Here you see 5:02 AM EDT (Eastern Daylight Time)

Stock Price : Change

This is the difference between the last closing price and the current price (Last Price).  Here we see that British Airways has increased 2.55% since the previous days close.

Stock Price : Prev. Close (Previous Close)

This is the stock price of the last transaction of the previous days trading.

Stock Price : Open

Now it gets interesting.  The open price is the price at which the first share was traded for the current trading day.  Here we see that the share price opened at 219.9, but the previous close was 216.  This means the stock price gapped up on open by 0.2% (the difference between open price and previous close).

Stock Price : Bid – The Price a Buyer Bids to buy a stock.

The Bid Price can be tricky to remember.  The Bid Price is the current market price offered for the stock.  So if you were to sell the stock now at “Market Price” you which get roughly this price per share 221.30.  The easy way to remember this is “BID TO GET RID”.  The BID is the price you would get when you want to get RID of the stock.

Stock Price : Ask

The Ask or Asking Price is the opposite side of the trade to the Bid Price.  If you want to buy a stock this is the price that someone else is ASKING for it.  The Ask is the current price that it will cost you to buy each stock.  An easy way to remember this is “ASK TO BUY”

But why is there a difference?  If one person is selling the stock at BID 221.30 and another is buying the Stock at ASK 221.50,  there is a difference of 0.2 pence per share (in this case less than 0.1%).  This is called the spread.

Stock Price : Spread

In the case of British Airways on the London Stock Exchange lots of shares are traded every day.  So the people handling the transaction between the buyers and the sellers have no problem finding matching partners for the transaction.  When a stock is traded a lot, it means it is very Liquid, or has a lot of Liquidity.  A very liquid stock generally means there is a low BID / ASK Spread.  When a stock is very rarely traded and the buyers and sellers cannot agree on a price to make a trade, then the spreads tend to be larger.  Where does this difference in the BID and ASK Price go.  The spread is usually the fee for the Market Maker / Broker or Specialist handling the transaction.  This is not the same as the Stock Broker Fee, which you will pay per trade to your broker, for example the $9.99 per trade that goes to TDAmeritrade or other discount brokers.

NOTE : Stocks with a large spread can be a problem.  It tells you 2 important things:

  1. The stock might not have a lot of liquidity, therefore it may be harder to sell at the price or time you wish to.
  2. If you do buy a stock with a large spread, for example 2%.  This means you would need to make a profit of 2% on the stock just to break even.

So be careful about the spread.

Stock Price : Days Range

This is the range within which the stock price moved up or down for the current trading day.

Stock Price : 52w Range

The 52 week range is the value between which the stock price has moved within the last 52 weeks.  Here we can see that the stock price for the last year has fluctuated between 130.80 and 255.80, so we know the current share price is towards the higher end of the 52 week range.

Stock Price : Volume

Finally we see the volume.  This is how many shares have changed hands during the current trading day.  Here we see nearly 2.5 million individual shares changed hands today.

Stock Price : Summary

So what is in a stock price?  Quite a lot actually.  Remember 3 things

  1. BID to get RID
  2. ASK to BUY
  3. Be careful of large spreads.

Have a good trading day.

Barry

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Comments

  1. Really Gr8 ! Thanks For sharing..

  2. de murph says:

    how to fill stoploss orders

  3. barrydmoore says:

    Hi de murph, stop loss orders are usually filled when the stock price moves through the value you have specified.

  4. Mitzi Page says:

    Thank you for sharing the information. Why the open price is difference from previous close price? In what condition this will happen?

    Thank you,

    Mitzi

  5. Hi Mitzi,

    the reason for the price difference between open and close, is that people trade in after hours markets. This affects price out of the normal market hours. Then when the market opens, it opens near the out of hours last traded prices.

    Great question thanks

  6. Nikhil Bahl says:

    Hi Barry, thats absolutely great, it is much appreciated. I must say, a lot of my doubts are clarified now. Once again thanks.

    Barry, any ides, how many shares a company can publish as a public issue…?

  7. stock market companies in delhi says:

    When you are starting out in the stock market,
    it is best to invest in what you know. The more familiar you are with a particular business or market niche, the better you will be at knowing
    whether a certain investment is likely to pay off.
    As you learn more, you can expand your investments.

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