What it means
In financial markets, a quote shows two prices for a security such as a share or a currency. The bid is what buyers are prepared to pay, and the ask, or offer, is what sellers want.
The difference between them is the bid-ask spread, which is a basic cost of trading. Quotes can be firm or indicative.
A firm quote means the dealer will trade at that price for a stated size and time, while an indicative quote is only a guide to where the market is. Traders and finance teams need to know which one they have been given.
Market data screens show quotes in real time, often with the last traded price and the size available at each level. Prices can change within seconds, so a quote is a snapshot rather than a promise to trade later.
Investors with large orders may find that the quoted size is smaller than they want. In day-to-day business, a quote is a written estimate from a supplier.
It lists what will be delivered, the price, the taxes and the period for which the offer is valid. Buyers often collect quotes from several suppliers to compare prices and terms before placing an order.
The nuance is that a quote is not always a final contract. A supplier's quote may be valid for 30 days and may be subject to change if the scope of work changes, and a market quote can be withdrawn at any time unless it is firm.
Finance teams should therefore check the terms, the validity period and any extra charges before relying on a quote. Foreign exchange quotes follow the same logic but have a special convention.
The pair is quoted as the price of one currency in terms of another, with a bid and an ask on each. Dealers adjust their quotes to reflect market conditions and the size of the trade.
In practice
Real-world examples.
Example
A fund manager wants to buy 10,000 shares and checks the screen, which shows a bid of $49.95 and an ask of $50.05. She places a limit order at $50.00 to avoid paying the full spread. The order fills in two parts over the afternoon, at an average price of $50.01.
Example
A facilities manager asks three firms for quotes to repaint an office. The quotes arrive at $18,000, $21,500 and $24,000, each valid for 30 days. The manager checks what each includes before choosing.
Example
A company treasurer calls a bank for a currency quote to convert $2,000,000 into euros. The bank gives a firm quote valid for 60 seconds. The treasurer accepts and the deal is confirmed immediately.
Formula
Calculation
Bid-ask spread = ask price - bid price; spread % = spread / midpoint x 100, where midpoint = (bid + ask) / 2
Suppose a share is quoted with a bid of $49.95 and an ask of $50.05.
Step 1: spread = $50.05 - $49.95 = $0.10.
Step 2: midpoint = ($49.95 + $50.05) / 2 = $50.00.
Step 3: spread % = $0.10 / $50.00 = 0.002, or 0.2%.
An investor who buys and sells straight away would lose about $0.10 per share, or $1,000 on 10,000 shares, ignoring commissions.Case study
Seen in the real world.
Kestrel Packaging is a fictional manufacturer used for illustration. Its purchasing manager received a quote for a new labelling machine at $90,000, valid for 30 days. The quote did not mention installation or training, which the manager assumed were included.
In this illustrative story, the finance team noticed the omission before ordering and asked the supplier to confirm the full price in writing. The revised quote added $7,500 for installation and training, which changed the comparison with a rival offer. The company now uses a standard checklist for supplier quotes covering scope, taxes, delivery and validity.
The buyer also learned to ask suppliers for quote validity dates, since a price held for only seven days can lapse during internal approvals. A simple approval workflow now flags quotes that expire within a week. The purchasing team says it has cut reorders and unplanned extra charges.
Watch out
Common mistakes.
- Treating a quote as a guaranteed price forever. Quotes expire, and market quotes can change in seconds.
- Comparing quotes without checking what is included. Scope, taxes and extra charges can change the true cost.
- Ignoring the spread when trading. The gap between bid and ask is a real cost.
Questions
People also ask.
What is the difference between a bid and an ask?
The bid is the highest price a buyer will pay, and the ask is the lowest price a seller will accept.
Is a quote the same as an invoice?
No, a quote is an offer of a price before the sale, while an invoice is a demand for payment after goods or services are delivered.
What is a firm quote?
It is a price the dealer commits to honour for a stated size and time.
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