Ask

What is 'Ask'

Ask is the price a seller is willing to accept for a security, which is often referred to as the offer price. Along with the price, the ask quote might also stipulate the amount of the security available to be sold at that price. Bid is the price a buyer is willing to pay for a security, and the ask will always be higher than the bid.

BREAKING DOWN 'Ask'

The terms "bid" and "ask" are used in nearly every financial market in the world, including stocks, bonds, foreign exchange and derivatives. An example of an ask in the stock market is $5.24 x 1,000 which means that someone is offering to sell 1,000 shares for $5.24 each.

The ask is always higher than the bid; the difference between the two numbers is called the spread. A wider spread makes it harder to make a profit, as the security is always being bought at the high end of the spread and sold at the low end. Different markets have different spread conventions, which reflect transactions costs, the value of a single point and liquidity. Spreads can widen sharply with unusually volatile trading or when there is a great deal of uncertainty over the direction of the price.

Stock Market Spreads

Stock prices changed from quoting in sixteenths to decimals in 2001. That brought the smallest possible spread from 1/16 of a dollar, or $.0625, to one penny. The width of a spread in nominal terms will depend in part on the price of the stock. A spread of two cents on a price of $10 is 0.02%, while a spread of two cents on a price of $100 is 0.002%.

Foreign Exchange Spreads

Spreads in the wholesale market in which financial institutions deal are very tight. They vary by currency because the value of a point varies. A typical spread when trading the euro vs. the dollar is between 1 and 2 points. This means that the bid might be 1.3300, which is the number of dollars needed to buy one euro, with an offer of 1.3301. A single point on a transaction of $10,000,000 and a EUR/USD rate of 1.3300 is worth $751. At 110 Japanese yen to the dollar, the value of one point on a $10,000,000 transaction is $909.

The bid/ask spread for cross-currency transactions such as euro vs. the Japanese yen or the British pound are usually two to three times as wide as spreads vs. the dollar. This reflects both lower trading volume and higher volatility.

Spreads in the retail market have tightened considerably with the increased popularity of electronic dealing systems. These allow small traders to view competitive prices in ways that only large financial institutions could do in the past. This has pushed spreads down as low as 3 to 10 points at times.

Bank Note Spreads

Buying and selling bank notes in foreign currencies is a separate market from either wholesale or retail foreign exchange. Spreads are likely to be 75 pips or more.

RELATED TERMS
  1. Spread Indicator

    An indicator that shows the difference between the bid and ask ...
  2. Bid And Asked

    A two-way price quotation that indicates the best price at which ...
  3. Spread

    1. The difference between the bid and the ask price of a security ...
  4. Bid-Ask Spread

    The amount by which the ask price exceeds the bid. This is essentially ...
  5. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
  6. Choice Market

    A market in which the spread between the bid and the ask for ...
Related Articles
  1. Investing Basics

    How To Calculate The Bid-Ask Spread

    It's very important for every investor to learn how to calculate the bid-ask spread and factor this figure when making investment decisions.
  2. Active Trading Fundamentals

    What Does Bid And Asked Mean?

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

    What is Spread?

    Spread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
  4. Options & Futures

    Trading Calendar Spreads In Grain Markets

    Futures investors flock to spreads because they hold true to fundamental market factors.
  5. Term

    Why Financial Spread Betting Gets a Bad Rap

    Spread betting lets speculators trade on price movements. Investors predict whether the spread between the bid price and the ask price will rise or fall.
  6. Term

    How Bid Price Affects Liquidity

    The bid price is the amount a buyer will pay for a security.
  7. Options & Futures

    Vertical Bull and Bear Credit Spreads

    This trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options.
  8. Trading Strategies

    What Is Spread Betting?

    The temptation and perils of being over leveraged is a major pitfall of spread betting. However, the low capital outlay necessary, risk management tools available and tax benefits make spread ...
  9. Brokers

    The Exciting World Of The Top Spread Betting Brokers

    Spread betting can be fun, but it's risky and you will want a reliable broker. Here are the top spread betting brokers.
  10. Forex Education

    How To Pay Your Forex Broker

    Three types of commissions are used in this market. Learn how to get the best deal.
RELATED FAQS
  1. What types of stocks have a large difference between bid and ask prices?

    Find out which factors influence bid-ask spread width. Learn why some stocks have large spreads between bid and ask prices, ... Read Answer >>
  2. What does the variance between the bid and ask price of a stock mean?

    Find out how stocks are traded in the market, why the bid and ask prices are different and why the bid-ask spread is smallest ... Read Answer >>
  3. What are the determinants of a stock's bid-ask spread?

    Stock exchanges are set up to assist brokers and other specialists in coordinating bid and ask prices. The bid price is the ... Read Answer >>
  4. What's the difference between bid-ask spread and bid-ask bounce?

    Understand the difference between the bid-ask spread that determines the buy or sell price for a stock and a bid-ask bounce, ... Read Answer >>
  5. How do I use the bid-ask spread to evaluate whether I should buy a particular stock?

    Understand the significance of the bid-ask spread for investors in making a decision on whether or not to purchase a particular ... 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 >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center