Hello members,
Nolan Laplante brings you the following, his first blog.
Bid, ask, and mark are some of the fundamental terms used when discussing orders. A bid is the price an investor is willing to purchase the security. If an investor offers to buy 500 shares for $16.45 and there is a seller in the market that wants to sell at that price then the transaction is completed. An ask is the price a seller is willing to sell for. It is basically the opposite of a bid. Another fundamental term is the bid-ask spread. The bid ask-spread is virtually the same as the range found in mathematics for charts: the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price a seller is willing to sell for. For example if the bid price is $6 and the ask is $8 then the bid-ask spread is $2. Finally, the mark is the average of the bid and the ask. In our experience, orders placed at the mark are usually filled in a timely manner.
The President’s addendum follows.
Exercise (answers to be emailed to President.):
- If I wanted to buy the underlying right now, would I be buying at the bid or the ask?
- If I wanted to sell, would I sell the bid or the ask?
- What would happen if the bids and asks at different exchanges are different?
Research what is arbitrage, and what middlemen and market makers are. There is no task with this research.
– Nolan Laplante and Michael Trehan