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The Bid
is the price at which a broker will buy your stock trading
position from you, the Ask is the price at which he
will sell you a position. When stock trading, the distance
between the bid and the ask depends on a number
of factors, such as is the security liquid, how volatile is
the market generally, the balance between buyers and sellers
and so on. This is the reason stock trading prices have 2
numbers - for example the price of IBM might be quoted as
148 - 149. This means that if you want to BUY a share of IBM,
it will cost you 149 dollars, but if you want to SELL a share,
you will only get 148 dollars for it. In the morning papers,
it is usual for only 1 stock trading price to be shown, the
MID price (the average of the bid and ask).
Think of it like
foreign currency - when you go into a UK Bureau de change,
they will give you £60 for your $100, but if you want to sell
them that £60 back, you will only get $95. Spread betting
companies have far wider stock trading spreads between
bid and ask than standard brokers because they don't have
commission charges.
Note - the "Best
Bid" for a stock is the higest price that a buyer is willing
to pay for that stock at that particular point in time. The
"Best Ask" is the lowest price that a seller is willing to
accept for a stock at that point in time. A stock trading
Bid is composed of a Buy Limit Order that has been placed
into the market. A stock trading Ask is composed of an open
Sell Limit Order.
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