Forgive me for asking this question as I am new to investing, but when you go to buy a stock and it says for example 4.60x100 bid/size and then 4.65x445 ask/size. What does that really mean? Does that mean I have to buy 100 shares t get that price?
No, you donât have to buy 100 shares. With some brokers, you donât even have to buy a single whole share as they support fractional shares.
These numbers usually are shown in brackets, and they represent the number of shares, in lots of 10 or 100, or whatever number is provided, that are limit orders pending trade. These numbers are called the bid and ask sizes, and represent the aggregate number of pending trades at the given bid and ask price.
The bid price represents the maximum price that a buyer is willing to pay for a share of stock or other security. The ask price represents the minimum price that a seller is willing to take for that same security.
In other words, Bid is the highest price at which you can sell and Ask is the lowest price at which you can buy. For example, if XYZ is quoted $37.25 bid, $37.40 ask, the highest price at which you can sell is $37.25; the lowest price at which you can buy is $37.40.
The question is whether the bid price will move towards the ask price or the ask price will move towards the bid price. This game of âchickenâ is what moves the market up or down for a particular company.
Fuskie
Who generally does not pay much attention to ask/bid prices except to get a feeling as to the volume and volatility of trading for a company, where the more narrow the bid/ask gap, the more likely trades will execute, leading to higher volatilityâŚ
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Elderkm,
As usual, TMFâs sales rep gave you an unhelpful, most wrong answer.
Depending on the trading platform youâre using and the level of data they provide or that you are paying for, what youâre seeing is only a faction of the order queue. Worse, what is shown is constantly changing throughout trading day as traders on both sides bluff and head fake AND as they adjust their prices according news for that specific stock AND for the general action in the overall market. Nonetheless, some info can be derived from the example you provided. 60x65 is a very wide spread for a low-priced stock. OTOH, the sizes are huge, because â100â isnât someone wanting to buy 100 shares, but aggregate orders from many buyers who --in total-- want to buy 10,000 shares. Ditto on the sell side of the order queue. In aggregate, a group of sellers is willing to offer out 44,500 shares. And that is only NBBO, 'National Best Bid/Best Offer. On either side of each, there are likely many other sellers and buyers with higher or lower prices. In aggregate, the collection of bids and offers is known as âthe bookâ, which is still only a fraction of what retail investors can see, because there are âdark poolsâ, plus âcross tradesâ.
Now come some practicalities. Depending on your broker, if you submit a market order for a stock with that kind of spread, it is highly likely youâll get âprice improvementâ, meaning, you wonât pay the âthe askâ. Though the discount will be modest, there likely will be a discount. OTOH, you could demand a discount and submit a limit order in which you specify at which price youâre willing to buy. Three common strategies are used: âsplit the spreadâ, âbid the lastâ or âlow ball/high ball.â
Now come more practicalities. Depending on whether the market makers are accumulating or dumping, trying to get fancy with limit orders is often counterproductive, especially if youâre not bidding in size. E.g., thereâve plenty of times when I was trying to buy pfds thru Schwab --which can be pretty illiquid-- and the spread was wide and I tried to split it with a limit order and didnât get a fill only to rewrite the order as âmarketâ and get a better price than I had originally asked for. (Go figure, right?)
Lastly, if you want buy (or sell) a stock, youâve gotta know where it has recently been trading and what its action has been both during the regular session during extended hours so you donât overpay or sell too cheaply. Sometimes, depending on what you want to buy or sell, you gotta take whatever the going price is. But youâd be surprised by how much prices vary throughout the day, and if youâre not in a hurry to put on or take off a position, you can often get a fill in your favor thatâs pretty far from the average price for the day.
Iâve got accounts with the usual suspects: Schwab, E*Trade, Fidelity, Firstrade, Interactive Brokers, TD Ameritade, Webull and have friends who use Robinhood or M1. My impression is this. All of them are fine if youâre an "investorâ just trying to buy a few shares and just using market orders. But if youâre trying to âtradeâ, most of them donât offer an adequate platform. To see that this is so, find a friend who uses TOS and have them load the âActive Traderâ module. Now you can see the depth of market, not just NBBO, as well as trade off the chart or the order queue itself, all just with mouse clicks.
Yeah, the previous might seem like a lot of detail. But it isnât even 10% of whatâs happening. Whole books exist on how stock exchanges work and how orders get routed to the various market makers. Michael Lewis does a good job of writing about this in his Flash Boys. But he draws the wrong lessons, because no retail investor should ever want to go back to âthe good, old aysâ, of pit trading, spreads in eighths and quarters, commissions of $40 per ticket, etc.
Suggestion: Paper trading is nonsense, because it encourages recklessness and allows for unrealistic fills. But some day when youâve got time, pick a liquid, low-priced stock with a lot of volatility and watch how it trades for a couple of hours, estimating where you could have gotten in and out. In particular, watch how it trades compared to a broad market derivative like SPY or RSP. What you should come away with is a sense of just how mercurial stock prices are and how easy is is to sense fear or greed --and especially hesitation-- in your counterparty, which is when you want to make your move.
Arindam
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