Glossary
Bid and Ask
The two live prices behind every quote: the most a waiting buyer will pay, and the least a waiting seller will accept.
A stock does not have one price. It has two at any given moment. The bid is the most that any waiting buyer is currently willing to pay. The ask, also called the offer, is the least that any waiting seller is currently willing to take. The single price on a chart is the price the last completed trade happened at, and it sits between the two.
A trade occurs when the two meet: either a buyer agrees to pay the asking price, or a seller agrees to accept the bid. That is the whole mechanism, repeated thousands of times a second on a heavily traded company, and it is why a quoted price flickers rather than sitting still.
Which of the two prices applies depends on the direction of the order. An order to acquire shares right away transacts near the ask; an order to release them right away transacts near the bid. On a large company the two sit pennies apart and the distinction barely registers. On a thinly traded one it is the difference worth knowing about.
Learn this properly
Lesson 3: How Buying a Stock Actually WorksBrokerage accounts, what happens in the seconds after you press the button, and order types explained without the jargon.
Related terms
- Bid-Ask SpreadThe gap between the highest price a buyer is offering and the lowest a seller will accept, usually quoted in cents per share.
- Market OrderAn instruction to trade immediately at whatever price is currently available, rather than at a price you name.
- LiquidityHow easily something can be turned into cash near its quoted price, without the act of transacting moving that price.
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