A:

It might seem logical that the last traded price of a security is the price at which it would currently be trading, but this rarely occurs.

The market for a security (or its trading price) is based on its bid and ask prices, not the last traded price. Investors can use the last traded price to gauge where the market is and what people have done recently, but once this price is posted, it is not the actual price you will pay if you decide to buy the security.

When you place a market order, you are asking for the market price, which means you must buy at the lowest ask price or sell at the highest bid that is available for the stock. You can ask your broker for these prices - they are normally given to you when you request a quote.

Alternatively, if you really want to buy or sell a stock at a specific price, it may be more advisable to use a limit order to do so. This way, you can be sure that all your buy orders will be filled at a price that is equal to or lower than your specified price level. Conversely, a sell limit order will ensure that your sell order is executed at a price that is equal to or higher than the price level that you want.

To read more, see our article Why The Bid-Ask Spread Is So Important.

RELATED FAQS
  1. How are after hour trading rates determined?

    I am new to stock buying and I was just wondering that if I buy stocks after trading hours (normally 4.30 EST for NASDAQ) ... Read Answer >>
  2. When is a buy limit order executed?

    Understand how buy limit orders work, and factors such as the bid-ask spread and market volatility that traders must consider ... Read Answer >>
  3. What do the bid and ask prices represent on a stock quote?

    Learn what the bid and ask prices mean in a stock quote. Find out what represents supply and demand in the stock market and ... Read Answer >>
  4. How do I place an order to buy or sell shares?

    Read a brief overview of how to open a brokerage account, how to buy and sell stock, and the different kinds of trade orders ... Read Answer >>
  5. Should I enter a limit order to buy a position with a bid and ask that are far apart?

    Learn more about order types and why entering limit orders to buy a security may help to mitigate the impact of wide bid-ask ... Read Answer >>
  6. How do I use a limit order in conjunction with a bid-ask spread?

    Understand the concept of the bid-ask spread as it applies to trading and how it impacts the pricing of limit orders used ... Read Answer >>
Related Articles
  1. Trading

    Making The Trade: Understand Order Types

    Buying and selling stock can be a lot like buying or selling a car. Traders should use and understand tools such as market orders, limit orders, day orders, and good-'til-canceled orders to ensure ...
  2. Markets

    How Bid Price Affects Liquidity

    The bid price is the amount a buyer will pay for a security.
  3. Trading

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  4. Trading

    What Does Bid And Asked Mean?

    Bid and asked is a two-way price quotation.
  5. Investing

    Negotiating the Bid

    A bid is an offer investors make to buy a security.
  6. Trading

    How To Place Orders With A Forex Broker

    Learn how to set each type of stop and limit when trading currencies.
  7. Investing

    The Basics Of The Bid-Ask Spread

    The bid-ask spread is essentially a negotiation in progress. To be successful, traders must be willing to take a stand and walk away in the bid-ask process through limit orders.
  8. Markets

    Stock Quotes Explained

    Curious about how stock quotes are compiled and what a trader should know about how? Read on.
  9. Markets

    Explaining Market Orders

    A market order is the most common order used to purchase a financial security.
  10. Trading

    How To Avoid Closing Options Below Intrinsic Value

    To get the best return possible on your options trading, it is important to understand how options work and the markets in which they trade.
RELATED TERMS
  1. Ask Size

    The amount of a security that a market maker is offering to sell ...
  2. Bid Price

    The price a buyer is willing to pay for a security. This is one ...
  3. Price Improvement

    Attaining a higher bid price, if you are selling a stock, or ...
  4. Inside Quote

    The best bid and ask prices offered to buy and sell a security ...
  5. Bid And Asked

    A two-way price quotation that indicates the best price at which ...
  6. Best Ask

    The lowest quoted offer price among all those offered by competing ...
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center