It sounds like this“A stock has one price, and that is what you pay to buy it and what you get when you sell.”
Thinking a stock has one price
Why it feels right
Shops have one price. A price tag says what you pay, and if you take the item back you expect about that amount. Apps show a single number in big type next to the share's name, so a stock feels like a thing with a price, the way a loaf of bread has one.
Why it’s wrong
There are always two prices at a moment: the bid, the most anyone is offering to pay, and the ask, the least anyone will accept. You buy at the ask and sell at the bid. The number shown as the price is just the last trade.
A worked example
A stock exchange is a market where lots of buyers and sellers each name a price. At any moment, the highest price a buyer has offered is the bid, say 99.90. The lowest price a seller will accept is the ask, say 100.10. If they were equal, the two would trade at once, so the ask is always higher than the bid.
The gap is real money. Buy 100 shares right now and you pay the ask, 100.10 each, 10,010 in all. Change your mind a second later and sell, and you receive the bid, 99.90 each, 9,990 in all. Nothing has happened to the company, yet you are 20 down.
The single number in the app is usually the price of the last trade, which could have been a buyer at the ask or a seller at the bid a moment ago. It is a history of one trade, not an offer you can take.
How to catch yourself
- You say 'the price of the stock is 100' as if you could buy and sell at it.
- You are surprised that selling straight after buying loses money.
- You read the big number in an app as a quote.
What to hold instead
A stock always has two live prices: the bid, what buyers will pay, and the ask, what sellers want. You buy at the ask and sell at the bid, and the gap between them is real money. The single number shown is the last trade.
Where you’ll meet it
- Reading a share quote on a broker's app.
- Wondering why a trade shows a small loss at once.
- Comparing the cost of trading different stocks.
Questions people ask
- What is the bid and ask price of a stock?
- The bid is the highest price a buyer is currently offering, and the ask is the lowest price a seller is currently asking. You sell at the bid and buy at the ask, so the ask is always above the bid.
- Why is the ask always higher than the bid?
- Because if a buyer offered as much as a seller asked, the two orders would match and trade immediately. The orders left waiting are the ones that haven't met, so the best sell is always above the best buy.