What it means
A typical quote starts with the last price, which is the price of the most recent trade. Next to it sit the bid and the ask.
The bid is the highest price a buyer is currently offering, and the ask is the lowest price a seller will currently accept. The gap between those two figures is the bid-ask spread, and it is a real cost for anyone who trades.
A buyer who wants shares immediately pays the ask, and a seller who wants out immediately receives the bid. Heavily traded shares have narrow spreads, while thinly traded ones can have wide gaps.
Quotes also show the volume, which is the number of shares traded so far that day, and the day's high and low. Many displays add the previous close, the change from it, the 52-week range, the market capitalisation (share price multiplied by the number of shares in issue) and ratios such as price-to-earnings.
Together these give context in one glance. Not all quotes are equal in timeliness.
Free quotes may be delayed by 15 minutes or more, while real-time quotes can carry a fee, and during trading halts or outside regular hours the displayed price can be out of date or based on very few trades. Anyone placing an order should check that the quote is live.
For non-specialists, the key point is that a quote is an invitation to trade, not a guarantee. The price you actually receive depends on the type of order you place, the size of your order and what happens in the market in the time between the quote and the trade.
Large orders in thin markets often move the price against the buyer.
In practice
Real-world examples.
Example
A treasury analyst wants to buy shares in a large utility company for the company pension fund. The quote shows a spread of one cent on a $60 price, so she trades through a standard order with little concern about cost. The narrow spread tells her the market is deep.
Example
A private investor wants to buy a small mining stock quoted at a bid of $1.10 and an ask of $1.30. The spread of $0.20 is about 16.7% of the midpoint of $1.20. He realises the shares would need to rise by well over 15% before he breaks even, and he decides to use a limit order or avoid the stock.
Example
A finance journalist is writing a market report and notes that a free website shows a price 15 minutes old. She uses a real-time terminal for the story. The difference matters because a company's shares had moved 3% during the delay.
Formula
Calculation
Bid-ask spread = ask price - bid price
Spread as a percentage = spread / midpoint price, where midpoint = (bid + ask) / 2
A quote shows a bid of $49.98 and an ask of $50.02. Spread = 50.02 - 49.98 = $0.04. Midpoint = (49.98 + 50.02) / 2 = $50.00, so the spread is 0.04 / 50.00 = 0.08%. An investor who buys 1,000 shares at the ask and sells straight away at the bid loses 1,000 x 0.04 = $40 to the spread.Case study
Seen in the real world.
Larkspur Textiles is an illustrative, fictional company whose treasurer is asked to sell 200,000 of its shares held as an investment. The quote on the screen shows a bid of $12.40 and an ask of $12.46, and the average daily volume is only 150,000 shares.
The treasurer realises that selling the whole amount at once would push the price down, as there are not enough buyers at $12.40. She splits the sale across five days, selling about 40,000 shares a day with limit orders near the bid.
The average price achieved is $12.31, slightly below the quote she first saw, and higher than the price a single large order would probably have fetched. The illustrative lesson is that a quote shows the price for small amounts, and the real price for a large order depends on the market's depth.
Watch out
Common mistakes.
- Treating the last price as the price at which you can trade now, when you would normally buy at the ask and sell at the bid.
- Using a delayed quote to make a trading decision, when prices may have moved significantly in the meantime.
- Ignoring volume, which shows whether the quoted prices can be traded in the size you want.
Questions
People also ask.
What do bid and ask mean?
The bid is the highest price a buyer is offering and the ask is the lowest price a seller will accept, and the difference between them is the spread.
Why does the quote I see differ from the price I get?
Your order may be filled at a different price because the market moves, your order is large or you used a market order rather than a limit order.
What is a delayed quote?
It is a price shown some minutes after it occurred, often 15 or 20 minutes, and it is common on free websites.
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