Ask Price

What is Ask Price?

The ask price is the lowest price of the stock at which the prospective seller of the stock is willing to sell the security he holds. In most of the exchanges, the lowest selling prices are quoted for the purpose of the trading. Along with the price, ask quote might stipulate the amount of security which is available for selling at the given stated price.

With the ask quote in the market, there is a bid price, which is the highest price at which the prospective buyer is willing to pay for purchasing the security. The difference between the ask price and the bid prices is known as the bid-ask spreadBid-ask SpreadThe asking price is the lowest price at which a prospective seller will sell the security. The bid price, on the other hand, is the highest price a prospective buyer is willing to pay for a security, and the bid-ask spread is the difference between them.read more.

The below image quotes the Bid and Ask prices for a stock Reliance Industries, where the total bid quantity is 698,780, and the total sell quantity is 26,49,459. These are the top five bid and Ask a quote.

Bid vs Ask Rate

Example of the Ask Price

Mr. X is the retail investorThe Retail InvestorA retail investor is a non-professional individual investor who tends to invest a small sum in the equities, bonds, mutual funds, exchange-traded funds, and other baskets of securities. They often take the services of online or traditional brokerage firms or advisors for investment decision-making.read more who recently opened an account with the brokerage firm where he can buy and sell the securities of different companies that are listed in the financial market. He presently has some money with him using which he wants to invest in the stock of the company ABC Ltd.

Mr. X wants to purchase the 200 shares of the company ABC Ltd when the market price of the shares of the company was $50 per share. But at that time, the ask quote and the bid priceBid PriceBid Price is the highest amount that a buyer quotes against the “ask price” (quoted by a seller) to buy particular security, stock, or any financial instrument. read more of the shares of the company ABC Ltd were $51 and $49, respectively.

Analysis

In the present case, Mr. X wants to purchase the 200 shares of the company ABC Ltd when the market price of the shares of the company was $ 50 per share. However, the lowest price of the stock at which the prospective seller of the stock is willing to sell the security, i.e., the ask price of the security, was $ 51 per share.

So if Mr. X is willing to buy the security at the current moment, then he has to pay $ 51 per share, which is it’s ask price and not the current market price, which is $ 50 per share. So, the total cost of Mr. X for purchasing the 200 shares of the company ABC Ltd would come to $10,200 ( 200 * $ 51).

Ask Price

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For eg:
Source: Ask Price (wallstreetmojo.com)

Advantages

  1. The ask quote is not only used in the stock market rather nearly in all of the financial marketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces.read more such as bonds, derivatives, and foreign exchange.
  2. From the perspective of the seller of the security, the ask quote describes the price willingness of the seller of the security, i.e., the lowest price of the stock at which the prospective seller of the stock is willing to sell the security he holds.

Disadvantages

  1. The ask quote is mostly in all the cases is greater than that of the current market price of the share. So the person who is buying the security has to pay the amount which is higher than the current market price, thereby increasing its cost of purchasing.
  2. Some of the investors, especially the investors who are new in the market, don’t have the knowledge about the ask price and how it differs from that of the current market price of the security which they want to buy. Now, if they place the market order, then the transaction of the investor will be executed at the ask quote. It can create confusion in the mind of the investors.

Important Points

  1. The ask quote in the market is always higher when compared with that of the bid quote. The difference between the ask and the bid prices is known as the spread. In case the spread is calculated between the ask quote and the bid quote is very wide. In that case, security is bought at the high end of the spread and sold at the low end of the spread. It makes it difficult for traders to generate profits from trading in the securities.
  2. If an investor is willing to buy the stock of any company, they need to determine that at what price someone is willing to sell the securities. For this, they would look at the ask price, which is the lowest price at which someone is willing to sell the securities.
  3. The ask quote, as well as the bid quote of the security in the market, keeps on changing at different points of time on a real-time basis. So there is no fixed ask rate as well as no fixed bid rate for any of the security. This price changes mainly on the basis of the current demand and current supply of the security in the market.
  4. If the market order is placed by the investor who is willing to purchase the securities of any company, then the order will be automatically executed for the required quantity at the prevailing ask price of the security. From the perspective of the seller, if the order is the limit order, then that would allow the trader to sell the security at the ask quote.

Conclusion

Ask price is the minimum price that the seller of the security is willing to receive. The ask price is used by the buyers who are purchasing the securities of the company from the financial market. When the investor is willing to buy the stock of any company, they need to determine that at what price someone is willing to sell the securities.

For this, they would look at ask quotee, which is the lowest price at which someone is willing to sell the securities. If the market order is placed by the investor who is willing to purchase the securities of any company, then the order will be automatically executed for the required quantity at the prevailing ask quote of the security.

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