How Can I Predict the Market Price for a Stock?


Ask SmallIvy

 

Dear SmallIvy,

How can I determine the market price for a stock?

Trevor

Dear Trevor,

The market price for a stock is actually made up of three prices, the Bid, the Ask, and the Last Trade.  The Bid price is what someone who wants to buy the stock is willing to pay.  The Ask price is what a person who is selling a stock is wanting for their shares.  The difference between the Bid and the Ask price is called the spread.  The Last Trade is the price at which the last set of shares changed hands.  Usually when stock prices are reported, the Last Trade is reported, although it would give a better picture if all of the prices were reported.  All three of these numbers can be found at Yahoo and other sites that provide stock quotes.

When you enter a market order to buy, your broker will buy shares at whatever the current Ask price is.  Note that if you are buying a lot of shares this can get a little more complex because actually your broker will buy as many shares as he can at the current Ask price, and once sellers at that price are gone, will start buying at higher Ask prices until the order is filled.  In fact, if there are other people in line in front of you, you may actually not get any shares at the current ask price, resulting in your purchasing shares at a higher price entirely.

One way to avoid the above issue is to order a Limit order.  A limit order says that you are willing to pay only a certain price.  The order will not be filled unless the ask price drops to the level of the limit.  For example, if you entered an order to buy 500 shares of XLNX at $50 per share and the current Ask price was $51, you would not buy any shares until the ask price dropped to $50 or lower.  Orders are normally good for only one day.  You can extend the time period (particularly for limit orders) to 30 days by making the order GTC, or Good ‘Til Cancelled.

I hope this answers your question.

To ask a question, email  vtsioriginal@yahoo.com or leave the question in a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing

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