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 is portfolio variance reduced in Modern Portfolio Theory?

    Learn about modern portfolio theory, specifically what it asserts about asset allocation and managing portfolio risk through ...
  2. What are the advantages of portfolio planning with the efficient frontier?

    Learn about modern portfolio theory and the efficient frontier. Understand the advantages of portfolio planning with the ...
  3. Which is better: dollar cost averaging or value averaging?

    Compare the two investment strategies of dollar cost averaging and value averaging, and learn which one usually generates ...
  4. What does the information ratio tell about the design of a mutual fund?

    Understand what the information ratio is and how to calculate it. Learn what the information ratio reveals about the design ...
RELATED TERMS
  1. Systematic Manager

    A manager who adjusts a portfolio’s long and short-term positions ...
  2. Unconstrained Investing

    An investment style that does not require a fund or portfolio ...
  3. At The Lowest Possible Price

    A type of security trading designation that instructs a brokerage ...
  4. At The Highest Possible Price

    A type of security trading designation that instructs a brokerage ...
  5. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
  6. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...

You May Also Like

Related Articles
  1. Entrepreneurship

    MLPs: Is Now the Right Time to Invest?

  2. Professionals

    Indexing vs. Stock Picking: Which is ...

  3. Personal Finance

    Why Cash Could Be Your Best Bet

  4. Retirement

    Top Tips for Rebalancing 401(k) Assets

  5. Stock Analysis

    Are These 5 Retailers in Trouble?

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!