Candlestick Trading Blog
Bid and ask prices at the time of trade execution are what traders pay or sell at unless they use limit orders. Bid and ask prices or the bid ask spread are the difference between the price at which the market is currently offering an equity versus the price at which the equity is being sold. This refers to the spot price, the price right now. It is very common when trading stocks, trading option, and trading futures with high volume that as soon as you see a price and want to buy or sell with your online trading software that the bid and ask prices will change. In an actively traded equity with very high volume and liquidity the bid ask spread may be only a few cents. On a low volume stock with little liquidity the bid and ask prices may be substantially different. A means of avoiding paying these prices is to place limit orders. By doing so you are creating your own bid or ask prices for the stocks, bonds, futures, or options you are trading.
The bid price and the ask price for an equity are typically available when trading online with the right trading software. Knowing the bid ask spread as a measure of market liquidity and market volume will help the trader convert knowledge of pricing gained through Candlestick pattern formations into profits. Typically traders find that their technical analysis tools work more efficiently and precisely when the market is very liquid with a small bid ask spread. As a rule the market for high volume equities will trade in a tight enough spread that there is no reason to intervene to create bid and ask prices. However, the role of the market maker in the NASDAQ and the specialist in the NYSE is to increase market liquidity and maintain a reasonable set of bid and ask prices, especially in a rapidly falling market. Where does the money inside of the bid ask spread go? It goes to pay the commission paid the broker or specialist as well as a number of fees. The NASDAQ broker or NYSE specialist is different from the stock broker or online brokers that one will pay commissions to for trading. That is an extra commission. Traders pay bid or ask prices when they enter market orders. They also pay the current price at the time the order to buy stock or sell stock is executed. This may change in the seconds to minutes it takes to place and execute the order. A way to make sure that the price you want to pay or buy at is the price of the trade is to place a limit order. Limit orders are placed to avoid buying stock or selling stock at a different price than you want to. Buy limit orders can only be executed at the limit price or lower, and sell limit orders can only be executed at the limit price or higher. Serious investors and traders as well as the SEC recommend never buying or selling at market price but only using limit orders. Even though limit orders are filled at bid and ask prices they are the prices that the day trader or investor involved in long term value investing decides upon.Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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