Ask Price (Definition, Examples) | What is Ask Price of a Security?

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 ask 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 asking price 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 asking price and the bid prices is known as the bid-ask spread.

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

Example of the Ask Price

Mr. X is the retail investor 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 when was $50 per share. But at that time the ask price and the bid price of the shares of the company ABC Ltd were $51 and $49 respectively.

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Analysis

In the present case Mr. X wants to purchase the 200 shares of the company ABCLtd when the market price of the shares of the company when was $ 50 per share but the lowest price of the stock at which the prospective seller of the stock is willing for selling 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).

Advantages

There are several different advantages of the Ask Price. Some of the advantages are as follows:

The ask price is not only used in the stock market rather nearly in all of the financial markets such as bonds, derivatives, and foreign exchange.
From the perspective of the seller of the security, the ask price 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

The different Limitations and drawbacks of the Ask Price include the following:

The ask price 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.
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 price. This can create confusion in the mind of the investors.

Important Points

The ask price in the market is always higher when compared with that of the bid price. The difference between the ask price and the bid prices is known as the spread. In case the spread calculated between the ask price and the bid price is very wide, then in that case security is bought at the high end of the spread and the same security is sold at low end of spread which makes it difficult for the traders to generate the profits from the trading in the securities.
If an investor is willing to buy the stock of any company, they need to determine that at what price someone is willing for selling the securities for. For this, they would look at ask price which is the lowest price at which someone is willing for selling the securities.
The ask price, as well as the bid price of the security in the market, keeps on changing at different point 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.
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 price.

Conclusion

Ask Price is the minimum price which 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 for selling the securities for.

For this, they would look at ask price which is the lowest price at which someone is willing for selling 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 price of the security.