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.

  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
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