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What's the relationship between Ask and Market Prices? |
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Probably the easiest way for me to explain this, is by telling you to run a quote on one of the stocks that you're interested in. Looking at the quote you'll see that there is a "price," which is what the stock is listed at and that's about all the "price" is good for. Which is to say, that it's just a good guide line, for telling you where the stock is at price wise. You'll also see the "ask price," which is the price that you will actually pay (- commissions) if you choose buy the stock. Next is the "bid price," this is what you'd receive if you were to sell the stock (- commissions.) Okay next thing is to figure the "spread." The spread is not reported on the quote. However if you subtract the bid price from the ask price, you'll have what is known as the spread. The smaller the spread the better. If it's quite small, say only .03 to .25, that shows you that there is a strong interest in this company, by other traders. If it's rather wide, like maybe .50 to 1. or so, there could be some problems experienced in selling this stock, primarily due to lack of interest by other traders (it's possibly suffering from low volume also.) This isn't a cut in stone rule, just a simple rule of thumb, that I've found to be often true. Now with the above mentioned information rolling around in your head, go look at your selected stock's chart. If the chart indicates that the price is 12.00 and you just saw on the quote, that the ask is 12.00 too, then you can see that the price is probably on the rise, at least at that moment. The opposite is true if it's dropping, in regards to the bid and the market price being at the same price. You already know what the spread is, from having just viewed the quote. Let's say that in this case that the spread is .06. Most of the time the spread isn't going to change much throughout the day, but it's really easy to just run another quote on it, to see if it has changed. Basically the price will bob up and down taking the bid and ask prices with it, during which time the ask and bid will likely maintain the six cent spread between them while all this fluctuating of the price is going on. Anyway in this situation the "ask price" should hang within .06 of the "price." |
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