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Chapter 33 – Bid and Ask Prices

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Have you entered into a trade and noticed that there was a significant change in the listed price of the stock and what you actually paid for it? This is a common consideration that many investors find, but it is a natural part of investing. As you look for stocks to invest in, you will come across two critical numbers:

  1. The Bid
  2. The Ask

Just because you see a stock at a certain value before you make a move does not mean that you’re actually going to get it at that specific value. You’ve got to work with the bid or ask at this point. For those who aren’t familiar, let’s look at what makes these two different:

  1. The bid is the best possible price that someone is willing to pay for the stock. This may include a listing of how many shares a person is willing to buy ($23 x 200 means people would pay $23 for a stock for up to 200 shares at a time). You would end up selling any stock you own at the bid price.
  2. The ask is the price at which owners of the stock are willing to sell. That number also shows how many shares people would sell for the listed value. You will buy a stock at the ask price.

The totals are based on orders that brokers and exchanges receive. Some people might be ready to pay a lot for stocks or they might not want to pay much because they think the stock might fall in value. Depending on how the stock moves, the bid and ask prices are good values that show how people feel about certain investments at a given moment.

Here’s an example of what you might see for the bid and ask. Six Flags Entertainment Corporation (NYSE: SIX) has a value of $66.73. The bid could be $59.98 x 100, meaning you could sell up to 100 shares for $59.98 each. Meanwhile, the ask for Six Flags might be $67.29 x 4000. You can buy up to 4,000 shares at $67.29 each.

The bid and ask totals show that stock buyers are not willing to pay a lot for Six Flags, thus causing you to get less money from that stock when you sell it. Meanwhile, you would still be able to buy it around the current value because the sellers are ready to sell their stocks even if they have to do this at a value close to its current worth.