How to read a stock quote

Author: Steven posted in Investing basics tagged with Investing 101, Stock market

If you are new to the world of investing in the stock market, then this article will teach you how to read and interpret stock quotes.

The two main components of stock quotes are the ask price and the bid price. The ask price and the bid price are how people participating in the stock market negotiate and communicate. When they match, then a trade takes place. Depending on which position you are taking within the trade (buying or selling) then you should match the asking price or buying price if you want to be sure the trade will take place. This can be done through a limit order, if you want to buy or sell at a specific price, or through a market order, which will fill the order at the given market price.

What is the Bid price

The bid price of a stock quote represents the buying side. The bid price is the highest price a participant in the stock market is willing to pay for a share of the stock at a given point in time. Since it represents the buying side, this is what sellers should focus on. If for example

What is the Ask price

The ask price of a stock quote is the lowest price a participant in the stock market is willing to receive for a share of stock at a given point in time. As a buyer, you should focus on this value, not the bid price.

The Spread

The difference between the bid price and the ask price is known as the spread and represents the profit of the market maker. The spread also gives the investor an indication of the liquidity of the stock. The smaller the spread, the better the liquidity. This is why the spread of blue chip companies is very small (a few cents) while that for small-caps can be 40 cents or more. The spread also tends to widen during market turmoil because buyers aren’t willing to go above a certain price and sellers aren’t willing to go below a certain level.

Check out the following video to see a practical example of how the bid and ask price work:

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