Trading Definitions of Bid, Ask and Last Price

How the bid, ask and last price affect day traders

Stock price quotes on stock ticker
The price shown on a stock ticker is usually the "last price" the asset traded at. Tetra Images/Getty Images

Day trading markets (stocks, futures, forex and options) have three separate prices that update in real time whenever the markets are open. These prices are known as the bid, the ask and the last price. Together, these prices provide current pricing information for the market in question. These prices let traders know where people are willing to buy, where they are willing to sell and where the most recent transaction occurred.

Bid Price

The bid price represents the highest priced buy order that is currently available for the market. This is the highest price that a trader is willing to pay to go long at that moment. Current bids appear on the level 2--a tool that shows all current bids and offers (also called the "ask") in a market place. The Level 2 also shows how many shares or contracts are being bid (how many shares or contracts traders traders have posted orders for) at each price.

When a bid order is placed there is no guarantee that the trader placing the bid will receive the number of shares (or contracts or lots) that they want. Each transaction in the market requires a buyer and seller, so someone must sell to the bidder in order for their order to be filled (receive their shares). 

For example, if the current bid on a stock is $10.05, a trader can place a bid at $10.05, or anywhere below it. If the bid is placed at $10.03, all other bids above it need to filled before the price drops to $10.03 and potentially fills $10.03 orders.

Bidding provides a way to get a better price, but there are no guarantees sellers will sell to you (you buy) at that price.

If you place a bid above the current bid you will either narrow the bid/ask spread (discussed below) or your order will hit the ask price (discussed below), in which case your order will be filled instantly since your buy order interacted with a sell order.

 

If a seller wants to exit a long position, or enter a short position right now, they can sell to the current bid price. A market sell order will execute at the bid price. So traders have a number of options when it comes to placing orders. They can place a bid at, or below, the current bid. They can place an order above the current bid, which will possibly interact with sell orders or narrow the bid/ask spread, or they can use a market order. A market order will take any price it can find to get a trader into (or out of a position) a position.

See Making Sense of Day Trading Order Types for descriptions and examples of the various order types.

Ask Price

The ask price represents the lowest priced sell order that is currently available for the market. This is the lowest price that a trader wants to go short at or sell at. Current offers (Ask and Offer are used interchangeably) appear on the level 2

When an offer is placed there is no guarantee that the trader placing the offer will receive the number of shares (or contracts or lots) they want. Someone must buy from the seller in order for their order to be filled. 

For example, if a current stock offer is $10.05, a trader can place an offer at $10.05, or anywhere above it.

If the offer is placed at $10.08, all other offers below it must be filled before the price moves up to $10.08 and potentially fills $10.08 sell orders. Offering/Asking provides a way to get a higher price when selling, but there are no guarantees buyers will buy from you (you sell) at that price.

If you place an offer below the current offer you will either narrow the bid/ask spread (discussed below) or your order will hit the bid price, in which case your order will be filled instantly since your sell order interacted with a buy order. 

If someone wants to buy right now (go long, or exit a short position), they can buy from the current offer price. A market buy order will execute at the offer price.

The Bid/Ask Spread

The bid/ask spread is the difference in price between the bid and ask. In active stocks the bid/ask spread is typically $0.01, for example the bid is $10.05 and the offer is $10.06.

The attached chart example shows a Level 2 in the SPDR S&P 500 ETF. It shows the current bid and offer (along with bids below the current bid, and offers above the current offer) along with how many shares are available to buy or sell at each price. 

In active futures markets the spread is typically one tick. The forex market isn't centralized, so it typically sees more variation in the bid/ask spread, but in active pairs will typically range from 0.1 to 1.5 pips

The spread can act like a transaction cost. For example, even in an active stock, always buying on the offer means paying a slightly higher price than what could be attained if the trader placed a bid at the current bid. Same with selling. Always selling at the bid means a slightly lower sale price than selling at the offer. The bid and ask are always fluctuating though, so sometimes it is worth it to get in or out quickly. Other times, especially when prices are moving slowly, it pays to try to buy at the bid (or below) or sell at the offer (or higher).

Last Price

The last price represents the price at which the last trade occurred. 

The last price is also the price that most charts are based on--the chart will update with each change of the last price. However, it is possible to base a chart on the bid or ask price as well (go into your charting settings to alter this).

The last is the most recent transaction, but does not always accurately represent the price you would get if you were to buy or sell right now. The last price may have taken place at the bid or ask, and/or the bid or ask price may have changed as a result (or since) the last price. Therefore, the current bid and ask more accurately reflect what price you can get in the market place right now, while the last price shows at what price orders have filled in the past.

The Final Word on Bid, Ask and Last Prices

There are always three prices while financial markets are open: the bid, the ask and the last price. The bid is the highest current order to buy, and the offer is the lowest current order to sell. To buy you can post a bid, or buy from the offer price. To sell you can post an offer, or sell to the bid price. When a buyer and seller meet the trade is recorded, with the most recent transaction being called the Last price. 

Updated by Cory Mitchell, CMT.