Have you ever bought a stock and were surprised by the price you paid? Maybe you paid less than you expected or perhaps you paid more. This can sometimes happen in fast or volatile markets when prices are changing rapidly. So while it might seem logical that the last price of a stock is the price where it will trade next, this rarely occurs. Here's why.
Understanding Stock Prices
The last price of a stock is just one price to consider when buying or selling shares. The last price is simply the most recent one. For example, if shares of Microsoft (MSFT) trade $50 per share, then $51, and then $50, and then $49. Since the last price is the most recent trade or print, the last price is $49 per share.
- The last traded price for a stock is not necessarily the price that an investor can expect to pay for their purchase.
- The stock quote also includes bid and ask prices, which reflect the prices that are available to buyers and sellers at the time.
- Bid and ask prices are always changing as collective buying and selling moves markets from one moment to the next.
- Using limit orders rather than market orders can ensure that you are not paying more for the stock than what you intended.
A stock quote includes more than just the last price. It also includes its bid and ask price. The bid price is the best available price for sellers, as it reflects the highest price that somebody is willing to pay for the stock. The offer or ask price is the price that sellers are willing to accept from buyers.
In sum, 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 might not be the actual price you pay if you decide to buy the security. The better indicator is the quote, which includes the bid and ask. Importantly, the bid and ask prices are also changing, as buyers and sellers adjust their bids and offers from one minute to the next. Therefore, there are no guarantees that an order will be executed at the bid or ask price either.
Effective Order Types
When you place a market order, you are asking for the market price, which means you 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—or see them online through your online brokerage platform.
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 your sell order is executed at a price that is equal to or higher than the price level that you want.