What Is Bid Size And Ask Size

Bid and Ask Toll Explained

When trading, y'all will hear about the "bid and ask cost."

What is it, and how do y'all use information technology?

What is the Bid and Ask Price?

Very easy:
– The "Bid" is the price that buyers are willing to pay for a stock and
– The "Enquire" is the toll that sellers are willing to sell a stock for.

Here'south an example:

In this example, buyers are willing to pay $259.06 for Apple tree (AAPL), but sellers want at least $259.x per share.

Let'south think almost it for a moment:

Some people think that the exchange is determining the price of a stock.

And that's non the case!

The price of a stock is determined by the price that buyers and sellers are willing to merchandise at.

Let me requite you an case:

When you walk into an fine art gallery and see a painting with a toll tag of $30,000, and then THIS is the asking price of the seller of the painting.

It'due south NOT the "off-white cost."

Information technology's just a price that the seller would like to get when selling the painting.

He'south "request" for it.

You, as a potential heir-apparent, could now offer – or bid – $twenty,000.

Now the seller has 2 choices:

He tin can accept your bid or

He can lower his request toll and come across if you're willing to buy the painting at a lower price.

As you can run across, the final "merchandise cost" is determined by the toll that the buyer and seller hold on.

Same with stocks:

The "last price" of a stock is the cost that buyers and sellers agreed on.

That'southward the price a trade was made.

However, you lot tin not buy a stock at the last price traded.

If you want to purchase a stock, you have to find a seller who's willing to sell to you.

Why Is The Bid And Ask Toll And so Unlike?

Sometimes you will see that the bid and enquire price is very dissimilar.

Here's an example:

In this example, buyers are willing to pay $20.80 (BID) for this stock, simply sellers desire at least $21.50 (ASK).

The deviation between the bid and enquire price is chosen "the spread," and in this example, the spread is $0.60.

In the previous example with Apple stock, the "bid/ask spread" was only $0.04.

So why is the bid and ask price for this stock so unlike?

A large bid and enquire spread is usually acquired by one of the following 2 atmospheric condition:

You're looking at a stock with low trading volume, i.eastward. in that location are but not many buyers and sellers or

Y'all're looking at the stock during "later hours", i.e. exterior regular trading hours.

If that'south the case, then you will see the bid/ask spread tighten immediately afterward the open up.

In the example above, I took the screenshot v min before the open.

Shortly later on the open up, the bid/ask spread was much smaller:

Every bit you tin can see, the bid/inquire spread tightened from $0.60 to only $0.04.

The next question is…

What Happens When Bid And Ask Are Far Autonomously?

Well, at some signal either the buyers or the sellers need to make another offer.

Either the buyers need to raise their bid, or the sellers have to lower their enquire.

Otherwise, no trade would take place.

It's like in our art gallery example from earlier:

If the seller keeps insisting on a price of $30,000 and not a cent beneath, and the buyer is only willing or able to pay $20,000 and not a cent more, then the painting won't exist sold.

Same in the markets:

Only if the buyers and sellers concord on a price, a trade can have identify.

What Is a Normal Bid/Enquire Spread?

When trading stocks, a "normal" bid/inquire spread is normally $0.01 – $0.04.

Whenever y'all see a larger bid/ask spread, you are either looking at a stock that'south not very liquid, or you're looking at the stock outside of regular trading hours.

For options, a "normal" bid/ask spread is $0.05 – $0.20 for 2 reasons:

Near options are trading in $0.05 increments, i.e. $one.10, $i.xv, $ane.20 etc.

Options are not as liquid every bit stocks. Simply a fraction of traders are trading options, therefore, there are fewer buyers and sellers.

Should I Buy At The Bid Or Ask Toll?

Let'southward review:

The BID is the price that buyers are willing to pay for a stock, and it's usually lower than the ASK.

It would be GREAT if we could buy at the bid price, but most of the fourth dimension, that's not possible.

We tin can either buy a stock at the ask price, or we can make an offer that's betwixt the current bid and ask and see if one of the sellers is willing to take the trade.

Here's an example:

Buyers are willing to pay a maximum of $eight.30 for this stock, but sellers want $viii.73.

If you wanted to buy the stock, you could offering $viii.40 and meet if a seller is willing to sell you the stock at that cost.

Often traders split the difference and offer a price in the centre, a.grand.a. the "mid" toll.

This brings united states of america to the next question:

Tin You lot Buy Stock For Less Than The Ask Cost?

Absolutely!

When you footstep out of the puddle of buyers and offering a college price than everybody else, you might find a seller who'south willing to take your bid.

In the case to a higher place, the bid is $8.xxx and the inquire is $8.73.

And so the "mid-price" would exist $8.52.

If y'all would heighten your bid to $viii.50 or $8.55, which is shut to the mid-price, it is very likely that there's a seller who is willing to take your bid.

It's VERY important that you know what society to use if yous try to allurement sellers.

Fortunately, I take an article for you lot that explains "The Difference Between A Stop Order And A Limit Order."

In a nutshell, if you want to purchase a stock for less than the asking price, you should use a limit order.

Read the article to acquire more about it.

Now y'all know what the bid and ask toll is and how to use information technology in your trading.

By the way, if you would like to know how I personally trade, you can see my full trading program here: MyTradingRoutine.com

Enjoy!