What Is Ask?
The ask, also known as the offer price, is the price a seller is prepared to take for a security. The quantity of security offered at the given price is also indicated in the ask quote and the price. The ask will always be greater than the bid since the bid is the price a buyer is willing to pay for a security.
Understanding Ask
In almost all financial markets worldwide, including stocks, bonds, foreign exchange, and derivatives, the phrases “bid” and “ask” are used interchangeably.
In the stock market, an example of an ask is $5.24 x 1,000, which denotes an offer to sell 1,000 shares for $5.24 each. The spread is the difference between the two figures, always greater than the ask. Because the security is always bought at the high end of the spread and sold at the low end, a wider spread makes it more difficult to profit.
The market spreads on stocks.
Stock prices began to be quoted in decimals rather than sixteenths in 2001. This reduced the spread to its lowest feasible value: one penny, 1/16 of a dollar, or $.0625. The price of the stock will have an impact on the nominal width of a spread. A two-cent spread on a price of $10 equals 0.02%, whereas a two-cent spread at $100 equals 0.002%.
Spreads on foreign exchange
Financial institutions trade in the wholesale market, where spreads are constrained. Because the value of a point changes by currency, the spreads do as well. When trading the euro against the dollar, a normal spread is between 1 and 2 points. Accordingly, the bid may be set at 1.3300, the amount of money required to purchase one euro at an offer of 1.3301. With a $10,000,000 transaction at a EUR/USD exchange rate of 1.3300, one point is worth $751. One point on a $10,000,000 transaction is worth $909 at a Japanese yen to the dollar exchange rate of 110.
Cross-currency trades, such as the euro versus the British pound or the Japanese yen, typically have bid/ask spreads two to three times wider than spreads vs the dollar. This is a result of more volatility and reduced trading volume.
Since computerized dealing methods have become more widely used, spreads in the retail market have become much more constrained. These enable small traders to examine competitive pricing in ways that were previously only possible for giant financial organizations. This has occasionally caused spreads to drop as low as 3 to 10 points.
Spreads on banknotes
Foreign currency banknotes are bought and sold on a different market than wholesale or retail foreign exchange. Spreads are probably going to be at least 75 pip.
Conclusion
- Another name for the asking price is an offer price.
- The asking price is never higher than the bid price.
- The spread is the distinction between a bid price and an ask price.
- Various spread customs reflect transaction costs, the worth of a single point, and liquidity in various markets.
