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.

[Deciding what order type to use can make a big difference in your trading profitability - especially when it comes to day trading. Investopedia's Become a Day Trader Course provides a detailed introduction into order types, fills, and other essential concepts that aspiring day traders need to know to be successful.]

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

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RELATED TERMS
  1. Buy Limit Order

    An order to purchase a security at or below a specified price. ...
  2. Inside Quote

    The best bid and ask prices offered to buy and sell a security ...
  3. Bid Price

    The price a buyer is willing to pay for a security. This is one ...
  4. Away From The Market

    An expression that is used when the bid on a limit order is lower ...
  5. Bid And Asked

    A two-way price quotation that indicates the best price at which ...
  6. Immediate Or Cancel Order - IOC

    An order to buy or sell a security that if not immediately filled, ...
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