When I sell shares online, I am given a best offer price. How is this offer calculated?

Question

Why does the price that a person sells their stock for, vary within seconds of each other.
For example, I sell 19000 shares at 50.73p (pence un UK). Seconds before me, a seller sells identical amount of stock at a better 50.85p then seconds afterwards a seller at 50.75p for same amount of stock. How is my (disapointing) offer calculated?

Answer 1

it's all based on supply and demand. If more people want to buy then sell at a particular moment, the price rises. If more people want to sell then buy at a particular, the price falls.

Answer 2

Your selling at market value and the market valued of a stock changes with every trade. There are many differen't forms of trades which may effect the value of your specific trade. Generally if you are a novice an just putting in a market trade you will be trading at premium because the price is dictated by the market. If the stock is at $100 and you put in a market order but someone else puts in a limit or order for $101 then you likely pay the $101. Since the stock isn't really worth $101 it will probably drop back to $100. This because more common in a Bear market. You can do the same thing, you don't have to limit yourself to market orders. Just be aware with a limit it's possible your order may not be bought.i.e If you put the same order in as a limit order for $1000 then nobody will buy it.

Answer 3

Yours is a good question and I wish someone had answered it better this past 4 days, because right now I'm kind of tired to write a good answer, but I'll try to give you some pointers. Actually I think I should write an article about it in my blog, as it is an issue every stock-market investor faces but it is not frequently explained.

A first, quick, answer is saying that intra-day prices can vary a lot, but there is more to it than that. You need to understand how stock trading works.

When the markets are open, there are many limit orders placed, some are orders to buy at specified prices, the others to sell at specified prices. It is like in the old days when traders at the floor were shouting things like "I buy XXX at $ 10!" and "I sell XXX at $10.50!". So there is a best offer for selling and a best one for buying, and those offers are probably shown to you if you're operating online, they are called bid/ask prices (actually the ones that are informed may not be exactly the best offers around but lets not delve into that)

When you place an order, you may place a market one or a limit one. If you place a limit one, you become one of those "shouting guys" (unless it is, in the example above, a limit sell at $10, which can be executed immediately). But if you place a *market* sell order, it is like instructing your broker to close a deal with the buyer who is offering the best price.

So what may have happened is that the other guy had a limit sell at 50.85p waiting when you placed a market sell which was matched with a limit buy of 50.73p that was around. Then someone placed a market buy, which was matched with the 50.85p offer to sell. In the meantime, someone else had placed a buy order, but a limit one, at 50.75p, which was matched by a market sell in the last moment. Or something like that...

Sorry if it is not clear but I told you I'm tired ;). Just remember there is not one single price for the stock, but lots of ask/bid offers. If the order you place is a market one, you can be sure of getting the stock, but you may lose a little money. Not because your broker is not getting you the best offer around (he has to) but because you didn't instruct him/her to wait for a better one.

If that doesn't explain it, then it was just intra-day volatility.

I'm linking some readings about this below. Just in case someone reads this in the future, I'm planning to write about order placement and execution in my blog "ETF Investing", in a more complete and clear manner. The address is also below.

Hope it helps. Cheers!

Answer 4

It isn't calculated, it is what someone is actually willing to pay at the moment. It may be that someone has posted a buy request at a specific level or that someone believes they can buy at the lower or must buy at a higher - best offer means just that - at the moment, the best offer available is this. Once sold at that offer, the next best is used until a better one comes in.

Answer 5

If you are selling shares of highly liquid stock, i.e., large and well-traded firms with sufficient volume, the trades are match booked depending on lots. If there is an off-lot size (not 100 shares), and it is a market order, it can be lumped together with other odd-lots and sold. Most of this is now automated based on incoming buy orders and sell orders based on time, size, and type of order.