Bid & Offer

Hey Team,

One of you sent through an email recently asking for a bit of an explainer re how to read the share quotes in the stock market. So what follows is entirely their fault. Seriously though, love the questions and keep ’em coming (and yes, I’m still working through a backlog of them at the moment).

Alright, let’s get to it.

Have you ever been dragged by your significant other down to the farmers market on the weekend? I know right, how fun is it? So much fun. I love it.  I’m so lucky. And happy. Anyway, think of the farmers market as a type of stock market. It’s filled with a bunch of sellers who are all trying to sell you what is effectively the same crap and a similar amount of buyers all eager to buy said crap. The thing is, if you walk around for long enough, you’ll start to see that the same good (ie tomato’s) are actually be sold at different prices at different stores. So it pays to walk around before you buy.

And that’s 5 minutes. Hope it helped….

You will also notice that different buyers will shop at different times of the day. They do that because they know that a different times of the day, produce becomes cheaper. 3pm is the sweet spot.

And that’s 5 minutes. Hope it helped….

The point is that different sellers have different prices at which they are willing to sell the same good for and different buyers have different prices at which they are willing to buy the same good for. And that’s precisely how the stock market works. However on the stock market things are a lot more transparent.

Below is a screen shot from Commsec, which is share trading platform offered by the Commonwealth Bank of Australia. It shows “the market place” for shares in a company called Xtek Limited. Its ticker, which is essentially just a three letter nickname people use to refer to it by is XTE.

 

On to what was actually asked….

The market place for XTE above shows both the buyers and sellers who are interested in transacting in it. Buyers “bid” to buy stocks and sellers “offer” to sell stocks.

Lets look at the Buyers (Bids) section:

  • Price ($): This is the price buyers are willing to buy the stock for
  • Volume: This is the total quantity of shares willing to be bought at that price
  • No.: This is the total number of distinct buyers there are willing to buy the stock at that price

Putting it all together, it means there is currently 1 buyer in the market, who is willing to buy 24,756 shares at the price of 52.5 cents each. There are a number of other potential buyers interested in the stock too. But they want to pay less for the stock. So the person who has bid 52.5 cents is essentially first in line at the moment to buy the stock.

Now lets look at the Sellers (Offers) section

  • Price ($): This is the price sellers are willing to sell their shares for
  • Volume: This is the total quantity of shares willing to be sold at that price
  • No.: This is the total number of distinct sellers there are willing to sell the stock at that price

So, as you can see there are 2 sellers willing to sell a total of 11,200 shares for a price of 54 cents each. There are a number of other sellers too, however that want to paid more for selling their shares. Therefore, when a buyer eventually comes around, the 2 people offering at 54 cents will be first in line to sell.

What does this mean for you?

  • If you’re a buyer: You have two choices.
    • If you are happy with paying 54 cents for the stock and want up to 11,200 units of it, then you can buy it off the seller who has posted their offer immediately.
    • If you want to pay less than 54 cents, you can post a bid in the market, with the price you are willing to pay and the number of shares you want to buy. This will then be shown on the list and then you’ll have to waitfor a seller to meet you on that price.
  • If you’re a seller: You too have two choices.
    • If you are happy to receive 52.5 cents and have up to 24,756 units to sell, then you can sell your holdings to the buyer who has posted their bid immediately.
    • If you want to receive more than 52.5 cents, you can post an offer in the market, with the number of shares you want to sell and the price you want to recieve for doing so.  This will then be shown on the list and then you’ll have to wait for a buyer to meet you on that price.

Every single company which trades on the stock market will have exactly the same set-up too.

And that’s really all there is to it. Hope it helped. 

 



Categories: General Finance, Investing, Trading

Tags: , , , ,

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