Bid is the highest price at which an investor can sell a stock; ask is the lowest price at which an investor can buy a stock. An extended quote typically provides the highest bid and lowest ask prices, with sizes. The bid size is the number of shares that someone is willing to buy at that price; the ask size is the number of shares that someone is willing to sell at that price.
A quote for XYZ that reads: bid $25.48 1,000, ask $25.55 800 means that a buyer is currently willing to buy 1,000 shares of XYZ at $25.48 and a seller is willing to sell 800 shares of XYZ at $25.55.
Extended Quote Structure
Retail investors usually transact at market prices (the best buy or sell prices they can get), but many stock orders are entered with a specified price at various levels below or above the current market price. Orders always specify the number of shares a trader wants to buy or sell. The highest offer to buy and the lowest offer to sell become the current bid and ask, with size, or the number of shares, specified in the order.
Indications of Interest
Market makers and specialists (professional traders who often take the other side of retail trades, as well as large institutional traders) often provide indications of interest -- how many shares they are willing to buy or sell at a specific price. Indications of interest from professional traders often form the current quote, with its bid and ask.
Order Size and Trading Volume
Bid and ask size are of little importance to retail investors in large-cap stocks that trade millions of shares daily because there are always buyers and sellers ready to transact at the current prices in sufficient quantity. If the current ask size is 1,000 shares and an investor buys 1,000 shares, the ask will go back to 1,000 shares in a blink. However, in low-volume stocks that only trade several thousand shares a day, the current bid and ask sizes are important because that may be all the shares traders are willing to buy or sell at current prices. For example: An investor who wants to sell 1,000 shares of XYZ, which only trades 20,000 shares a day, sees a current bid to buy 500 shares at $25.48. He may be able to sell 500 at that price, after which the next bid down, which could be 300 at $25.15, could become the current market bid.
- “PassTrak Series 7: General Securities Representative License Exam”; Dearborn Financial Services; 2003
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