What it means
A quote is an offer to trade at a stated price, normally shown as two numbers. The bid is the highest price a buyer currently offers, and the ask is the lowest price a seller currently accepts, so a quote of $49.90 / $50.10 means you can sell at $49.90 or buy at $50.10.
The market is the live process in which orders interact. When you place a market order, you do not trade at a number you saw earlier; you trade at the best available prices at the moment your order arrives.
The difference matters most when prices move quickly or when few people trade a security. By the time an order arrives, the quote you were looking at may have changed, and a large order may have to work through several price levels, so the average price paid can be worse than the quote on screen.
Traders therefore choose between order types. A market order prioritises speed and certainty of execution, while a limit order prioritises price and may never fill if the market does not reach it.
Quotes can also be indicative, meaning a guide rather than a firm commitment, or firm, meaning the dealer must trade at that price for a stated size. Always check which kind you are looking at before relying on it.
For a business, the lesson is to ask for a price at the size you actually intend to trade. A quote for a small amount tells you little about what it will cost to move millions of dollars.
In practice
Real-world examples.
Example
An investor sees a quote of $20.00 on her phone and places a market order for 500 shares. The price jumps during a news announcement and she is filled at $20.25, costing her an extra $125 compared with the quote she saw.
Example
A currency dealer gives a corporate client a quote for buying 5,000,000 euros at a stated rate. The quote is firm for ten seconds, so the client must accept quickly or ask for a fresh one. The treasury team has agreed an internal rule that any hedge above a set size is quoted by at least two banks.
Example
A small bond fund wants to sell a thinly traded corporate bond. The quote on the screen is for 100 bonds only, so selling 2,000 bonds means accepting progressively lower prices as the order is worked through the market.
Formula
Calculation
Bid-ask spread = Ask price - Bid price
A share is quoted at $49.90 bid and $50.10 ask, so the spread is $50.10 - $49.90 = $0.20. The midpoint is ($49.90 + $50.10) / 2 = $50.00, and the spread as a share of the midpoint is $0.20 / $50.00 = 0.4%.
If you buy 1,000 shares with a market order and are filled at the ask of $50.10, you pay $50,100. Selling them straight back at the bid of $49.90 would return $49,900, so the round trip costs $200 before any commission.Case study
Seen in the real world.
Greenfield Treasury Services is an illustrative, fictional corporate cash-management team that invested surplus cash in a short-term bond fund. An analyst compared the closing quote of a thinly traded bond with the price the fund actually received when it sold part of its holding.
The sale had been completed 0.8% below the last displayed quote because the buyer base was small and the order was large. On a $500,000 position that gap cost the fund $4,000. The team learned that a quote only tells you what a small trade might cost, while the market shows the price of a trade at your size. The finance director added a line to the investment policy requiring a size-specific price check before any sale above $250,000.
Going forward the team asked brokers for executable prices at the intended size and used limit orders for large sales. In this illustrative story the change saved a meaningful amount over the following year, and the team started recording the difference between expected and actual execution prices in its monthly report.
Watch out
Common mistakes.
- Assuming the last displayed price is the price you will get when you place a market order.
- Ignoring the bid-ask spread, which is a real cost every time you trade and is largest for small, thinly traded securities.
- Treating an indicative quote as a binding offer to deal.
Questions
People also ask.
What is the difference between a market order and a limit order?
A market order executes immediately at the best available price, while a limit order only executes at your chosen price or better.
Why do quotes differ between brokers?
Different venues and dealers may show different prices and sizes, and data delays can also make a quote out of date by the time you see it on screen.
How can I reduce the gap between quote and execution?
Trade liquid securities, use limit orders for larger sizes and avoid trading around major news releases.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%