Bid - Ask

Elementary question, but I seem to have confused myself. Lets say i want to buy a stock and i place a market order. If there is enough size, do I get filled at the best ask price.
On the flip side If I am selling the stock at the mkt am I getting filled at the best bid?

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Comments (20)

Mar 22, 2011 - 9:17am

It depends on your broker. They get to preempt the order and give you a price better than best ask or best bid if they'd like. But generally, if you're trading a 100-lot order, you'll be able to set a limit order and have it go straight to the market as its own bid or ask or you can set a market order which will mean, regardless of size (assuming it's 100 shares or less), you'll get at least the best bid or ask these days.

15 years ago, if you were trading 50 shares, the broker would round the price up or down on you for a net $1 bid-ask spread. Now with electronic and algorithmic market making, there's no need to do that- the cost of narrow spreads is now measured in watt-hours.

Mar 22, 2011 - 9:33am

I think everyone might be confusing him. Illustration:

bid/offer = 100/100.1

Market order to BUY would LIFT the OFFER at 100.1.

Market order to SELL would HIT the BID at 100.

There may be bids at 99.9... 99.8... 99.7... etc. and offers at 100.2... 100.3... etc. But you usually get filled at the best bid/ask if there's enough size. There are little nuances about how your order is routed and your broker and things like that, but for academic purposes the above holds.

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Mar 22, 2011 - 9:39am

Bids and Asks (Originally Posted: 10/02/2012)

My question is in regards to low volume stocks; more specifically, penny stocks.

Using a retail broker, I can see what the most "relevant" bid and ask prices are at any moment, but I was hoping someone could tell me if it is possible to get information on the "next" bid and ask prices.

For example: Let's say the bid and ask is 0.73/5,400 and 0.84/4,000

If I wanted to sell 10,000 shares, would it be possible to find out what price the next 4,600 shares are bid at?

This way, my orders could be tailored for those different levels.

(Am I making any sense?)

Mar 22, 2011 - 9:40am

You need access to Level II quotes, it would show you what is behind the current posted bid/ask.

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Mar 22, 2011 - 9:43am

Bid-Ask question: for upcoming test and general info (Originally Posted: 03/29/2013)

I'm taking a licensing test, which I failed by one point the first time, and one of the things I was bad at was these bid-ask spreads. So say a stock is quoted at 10.00-10.25 10x10, I know 10 is the "bid," 10.25 is the "ask," but does this mean the market maker is selling 1000 shares at 10 dollars or 10.25? If a broker-dealer is buying, are they paying him 10.25 or 10 for the stock? Also, if someone else "bids" for the stock, who does the market maker get the prices on his quote from? If someone is "willing" to pay 10.50, what happens to the quote? If someone is willing to sell at 9, what happens to the quote? What does is mean if a market maker "receives a better quote?"

Mar 22, 2011 - 9:44am

I would stay away from talking market maker vs borker dealer, much more accurate to say market maker vs market taker, because the wya you are saying it is as if using specific job roles, but in reality people are usually market makers and market takers at various stages. For example I work on a sell side options desk, now if a client comes and asks for a quote i give him a bid and offer for example 19-21. This means the client can buy from me at 21 or sell to me at 19, if it was the other way around it would be quite stupid.Now on the other hand if i go into the broker market and see someone making a price of 18-19, and I just sold at 21, I will go lift at 19, in which case i am a market taker in that situation.

In your example if the market maker is quoting 10 - 10.25, why on earth would he be willing to sell at 10 and buy at 10.25? If that was the case you would buy it from him at 10 and sell it back to him at 10.25. If that is the quote you need to pay 10.25 to buy it.

If someone is willing to pay 10.5, then that means they are willing to pay 10.25, so they will lift 10.25, then the market maker might adjust his quote to 10.5 etc.

Mar 22, 2011 - 9:46am

On trading desks lifting means buying. So in Derivtrading's examples they would buy at 19.
Hitting means selling.

Mar 22, 2011 - 9:48am

Adjusting bid-ask spread to key events? (Originally Posted: 12/27/2013)

The market is waiting for a key piece of economic data, the University of Michigan (US)
Consumer Sentiment index
– Index > 100 suggests consumer optimism; index

Mar 22, 2011 - 9:50am

Don't trade key economic indicators, that would be my advice. I think you need to define the situation a bit, given what you are saying with a big miss like that your bid/ask will both reset lower because there will probably be a ton of selling pressure given an awful print like that.

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