How Does Ask Price Work?
Ask price is the lowest price a focus seller is willing to accept in exchange for a specific security. It’s also like the reserve price at an auction; it’s a price that someone has agreed to sell a security. It is different from the bid price, which is the price a buyer is happy to pay for a security. Therefore, if you are buying an asset or security, which means you are paying the ask price.
When a trader decides he wants to sell a security he owns, he doesn’t have to offer it at market price; instead, he can use a “limit order” to specify to his broker that he wants to sell the security, as long as it’s above a certain price. For instances, Mike owns shares of Company ABC, but is now interested in selling them. Lately, shares of ABC have been trading between $20 and $25 throughout the day, but mike would prefer not to sell for any price under $24. Because he’s indicated a “sell price,” mike’s broker will only execute the trade at or above that price. Therefore, the ask price is the lowest price mike is willing to accept.
Why Does Ask Price Matter?
Generally, the ask price for a specific security displayed in most services like Yahoo Finance is the lowest ask price in the market. But traders don’t have to buy or sell securities at these prices. Investors can specify their bid price when telling their broker to execute a trade. The trade may not be made immediately (or even depending on buyers’ bid prices), but the seller can rest assured that he didn’t make less than he intended.
what ask price has to offer investors?
To understand what an ask price is and what investors must benefit from this detail, I will unveil the difference between a Bid and Ask Price.
- The bid price when investing is the maximum amount of money that someone is willing to pay for a particular security. While, the ask price is the total amount of money that a security owner is ready to sell for.
- There can be a situation where multiple buyers bid a higher amount; however, the same would not be applicable in case of an ask price.
- The price of the bid is known as the seller’s cost, so if anyone sells a stock, he will be the one who gets the price of the bid. If you’re the one who buys the stock then you would get the asking price
Factors That Affect Bid Price and Ask Price
- Market Size
The bigger the market size and trading volume that happens daily for a particular security, the narrower the bid-ask spread is likely to be.
- Political/Economic Uncertainty
When people are not sure about the political or economic climate, people tend to play it safe with their investments. In other words, sellers stop dropping their ask price, and buyers stop increasing their bid price.
volatility widens the bid-ask spread. Why? Because if the price of a security jumps and falls wildy, or without any predictability, market-makers have a much harder time setting the ask price or the bid price.
Bid price and ask price are the most important elements that you need to consider as an investor. Not just that, you need to fully understand the importance of the bid-ask spread, and what factors can influence it.