Online glossaries for a stock market beginner?

September 1, 2004 9:48 AM

Stock market filter: I'm not getting the answer i want from online glossaries that I've checked out. Can anyone give me a good layman's answer for a stock market beginner? When looking at a stock's price, what are the Bid price and Ask price and how do they relate to the "current price" of a stock. It seems simple, but there is some mental block preventing me from totally getting it, i think.
posted by Slimemonster to education (4 comments total)

"Bid" is the price somebody's currently willing to pay for the stock, and "Ask" is the price somebody's currently willing to sell it for. Usually, there's a small difference between the two prices, and the "current price" is reasonably well approximated by the middle of the spread. When you start talking about bid and ask, you're looking at a micro view of the market -- some specific person is willing to buy or sell a specific number of shares of the stock for a specific price. There are usually more people behind the closest-together "bid" and "ask," where the people behind either want to get more for their shares, or are willing to pay less. But eventually, somebody will come along and say "ok, I'll buy them for the ask price" or "I'll sell mine for the bid price" and then you have a trade.
posted by spacewrench at 10:09 AM on September 1, 2004

Further to spacewrench's explanation, the "Ask" is the lowest price of all the potential seller's and the "Bid" is the highest of all the potential buyer's. The "current price" is just the price at which the stock sold for during the latest transaction.
posted by bachelor#3 at 10:51 AM on September 1, 2004

To explain just a tad more... "Current" is the dollar figure for the last sell (regardless of the volume.) "Ask" is the lowest price someone is trying to sell the shares for (regardless of the volume.) While "bid" is the highest price someone is willing to pay for the shares (regardless of the volume.) The volume of shares you would be interested in buying however would most likely (slightly but yes...) change the price you would be able to either ask or bid. Of the stocks I watch, most exchanges are of of thousands of shares at a time. Of the stocks I trade, most exchanges are in the tens to hundreds. Working in the stock market in this scale does slightly change the prices you are able to get since it takes more work to break up a large exchange into two or more exchanges than to simply do a one-for-one large exchange.

pwb.
posted by pwb503 at 11:13 AM on September 1, 2004

That's not how I understand it. This NASD glossary indicates that the NASDAQ exchange, at least, operates differently. A trade is not executed when one party raises his bid to match the ask of another party. A trade is executed when one party is willing to buy at the ask of a market maker or willing to sell at the bid of a market maker. Market makers buy at the bid and sell at the slightly higher ask. This premium, called the spread, is their compensation for maintaining a market in a particular security.

I am not an expert, but this interpretation of the glossary matches up with what I always believed to be the case. Am I mistaken? Is it more complex than this? Do other exchanges operate differently?
posted by stuart_s at 11:24 AM on September 1, 2004