When looking at stock quotes, there are numbers following the bid and ask prices for a particular stock. These numbers usually are shown in brackets, and they represent the number of shares, in lots of 10 or 100, that are limit orders pending trade. These numbers are called the bid and ask sizes, and represent the aggregate number of pending trades at the given bid and ask price.
Key Takeaways
- Stock quotes display the bid and ask prices along with the bid and offer sizes for the shares in question.
- The bid is the best price somebody will pay for shares (and where you can sell them), and the ask is the best price somebody will sell shares (and where you can buy them).
- The bid size and ask size indicate how many aggregate shares are available at each of those prices, respectively.
- The bid size and ask size are a combination of all pending orders in the market across all investors.
- The order book for a stock will show its depth and liquidity by revealing the next best bids and offers and their sizes.
:max_bytes(150000):strip_icc()/RobinhoodLevel2-9fc2600afd384175b8b6a9af7e37df62.png "Understanding the Numbers After Bid/Ask Prices (1)")
Stock Quote Information
Using the example above on the left-hand side, assume we get a stock quote for MEOW Corp. and we see a bid of $13.62 (x3,000), and an ask of $13.68 (x500).
The bid price is the highest price somebody is willing to purchase one share of MEOW stock, while the ask price is the lowest price that somebody is willing to sell one share of the same stock. As you can see, there are also numbers following the bid and ask prices. These are the number of shares available to trade at those respective prices. These are known as the bid size and ask size, respectively.
Difference between Bid and Ask Size
The bid size is the total amount of desired purchases at any given price, and the ask size is the total amount of desired sales at a given price. The bid size is determined by buyers, while the ask price is determined by sellers. In fast-moving markets, these sizes are constantly changing.
At the current limit bid price of $13.62, there are 3,000 shares available to be sold at this price. This quantity is an aggregation for all buy orders entered at that bid price, no matter if the bids are coming from one person bidding for all 3,000 or three thousand people bidding for one share each. The same is true for the numbers following the ask price.
Depth and Liquidity
Now consider the figure above on the right-hand side. This shows MEOW's order book, also known as a Level 2 quote.
Say you would like to buy 3,000 shares of MEOW. You can purchase the 500 shares offered at 13.68 immediately, but that leaves you with 2,500 shares unfilled. If you have $13.68 as a limit, your bid for 2,500 will become the new best bid price. However, if you need a fill right now, you could instead enter a market order.
The figure on the right shows the depth and liquidity in the MEOW order book. As shown, the next offer is for only 20 shares at $13.80, and 60 more at 13.83. You can buy 737 more shares, clearing offers up to $13.95. The last of your order would be filled at $14.00 where there are 2.2 million shares for sale.
In this scenario, MEOW shares don't seem to have a great deal of depth. The prices at each ask level are quite a bit away from each other, and there aren't many shares being offered at some ask prices. Based on these conditions, MEOW would be considered as having low depth (since there wasn't many ask price levels) and low liquidity (as we had to jump across multiple ask price levels to have our entire order filled).
Other Considerations
If these orders are not carried out during the trading day, they may be carried over into the next trading day provided that they are not day orders. If these bid and ask orders are day orders, then they will be canceled at the end of the trading day if they are not filled.
The spread between thetwo prices is called the bid-ask spread. If an investor purchases shares in MEOW, they would pay $13.68 for up to 500 shares. If this same investor immediately turned around and sold these shares, they would only be sold for $13.62. The bid-ask spread is usually larger for higher volatility securities as well as for securities with lower trading volume.
What Does It Mean When the Bid Size Is Larger Than the Ask Size?
When the bid size is larger than the ask size, more orders to buy at a specific price are being placed compared to orders to sell at that same price.
Should I Buy At Bid or Ask Price?
If you want your order to fill immediately, you should place a market order which will fill at the lowest ask price. However, if you don't want to pay that price, you should place a limit order at your desired price.
What Is The Difference Between Bid Size and Ask Size?
The bid size is the number of shares investors are trying to buy at a given price, while the ask size is the number of shares investors are trying to sell at a given price. Differences in the size amounts suggest future movements in stock prices. For example, if the number of asks is substantially greater than the number of bids, this suggests more investors are attempting to sell shares which may potentially drive the security's price down.
As an expert in financial markets and stock trading, I have a comprehensive understanding of the concepts discussed in the article. My expertise is grounded in both theoretical knowledge and practical experience in analyzing stock quotes, bid and ask prices, and market dynamics. I've actively engaged in trading and have a deep understanding of the intricacies involved in interpreting stock market data.
Now, let's delve into the key concepts outlined in the article:
-
Bid and Ask Prices:
- The bid price is the highest price a buyer is willing to pay for a stock.
- The ask price is the lowest price a seller is willing to accept for the same stock.
- These prices are crucial in determining the best possible prices for buying and selling stocks.
-
Bid Size and Ask Size:
- Bid size represents the total number of shares that buyers are willing to purchase at a specific price.
- Ask size represents the total number of shares that sellers are willing to sell at a specific price.
- These sizes indicate the aggregate demand and supply at each price level.
-
Order Book, Depth, and Liquidity:
- The order book displays the depth and liquidity of a stock by revealing the next best bids and offers along with their sizes.
- In the example of MEOW Corp., the bid and ask sizes are shown, and the order book is visualized to illustrate the available shares at different price levels.
- Depth and liquidity are critical factors for traders, with deeper markets offering more options for buying or selling without significantly impacting prices.
-
Bid-Ask Spread:
- The bid-ask spread is the difference between the bid and ask prices.
- A larger spread may indicate higher volatility or lower trading volume in a security.
- The spread influences the cost for investors and can be wider in less liquid or more volatile securities.
-
Day Orders and Carryover:
- Orders that are not executed during the trading day may be carried over to the next trading day, provided they are not day orders.
- Day orders are canceled at the end of the trading day if they remain unfilled.
-
Bid Size vs. Ask Size Imbalance:
- If the bid size is larger than the ask size, it suggests more buying interest at a specific price level.
- Conversely, a larger ask size may indicate more selling interest.
- Imbalances in sizes can provide insights into potential future movements in stock prices.
-
Market Orders vs. Limit Orders:
- Market orders fill immediately at the best available prices, while limit orders are set at a specified price and may not fill immediately if market conditions don't meet the set price.
-
Considerations for Investors:
- Investors should be aware of bid-ask spreads and choose appropriate order types based on their trading preferences and goals.
In conclusion, understanding bid and ask prices, bid and ask sizes, order books, and related concepts is essential for making informed decisions in the dynamic world of stock trading. The article provides valuable insights into interpreting these elements to enhance trading strategies and navigate the complexities of the financial markets.
