ask-bid and closing prices?

Question

The ask price is supposedly what a seller a willing to sell his share of equity for at the min price. The bid is supposedly what a buyer is willing to buy his share of equity at the maximum price. This creates the bid-price spread. My questions are why does the closing price sometime deviate from the asking price and when you buy, do you buy at the the market price or the asking price throughout the day? And if you do buy it at the asking price, do you sell it at the market price?

Answer 1

The closing price is the final booked transaction --

--except on the NASDAQ where it is the final reported transaction,

--and except block trades which occur "off the tape," are are inserted later into the transaction record.

So the tape is purposefully inaccurate. First, NASDAQ trades are in order reported not the order occurred. They are generally the same, but not always the same. If two NASDAQ market makers enter into a transaction on ABCD one at 10:00 and the other at 10:00:30, it is quite possible that simply due to differences in computer networks the 10:00:30 will arrive at the NASDAQ first, reversing the actual order of the tape.

Second, block trades on the exchange are hidden from the exchange until after they are completed. They get booked at the average prices. So a 10,000 share purchase of ABC made up of 1000 shares at 10 5000 shares at 10.50 and 4000 shares at 9.50 will not report as three trades but only as one trade at 10.05. Further, the insertion into the record is not always immediate. To a person using the tape to trade, it would appear that a large block trade just occurred at 10.05 but it could have occurred over thirty minutes or even hours if there was a limit order and may not got inserted near the closing transaction. This makes movements up and down in the market completely incorrect. This is especially true on the big stocks where blocks are more common.

If you buy at the asking price you are buying at the price the market maker is willing to sell at, given what the market maker knows of the book of limit and stop orders out there. It is the "market price," in the sense that it is the only price at which you can instantly liquidate your position, but if you are willing to wait even minutes, a limit order permits you to determine the price you are willing to pay. Of course, some limit orders never get filled.

Answer 2

If you are a buyer and you place a market order, you will buy the shares at the ask price. If you are the seller and you place a market order, you will sell at the bid price. However, you do not have to place a market order. You can place a limit order. That is, if the bid is $18 and ask is $20, you can place your order at $19 or !8.50 or $19.25. If someone likes your price better than the other prices in the market, they will accept your offer. The bid and ask prices constantly change in response to market demand. By the time the market is ready to close, the prices might be $17 and $19.10, or $22.5 and $23.15. If a lot of sellers have been coming into the market the prices will decline. If a lot of buyers are looking for the stock the price will go up.

The closing price is the last price at which the stock traded before the market closed.

Answer 3

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Answer 4

If you use market orders you always buy at the ask and sell at the bid. The "market price", better called the "last trade price" may deviate because someone is selling at the bid. Also, the bid and ask are for certain quantities of stock. If someone wants to buy or sell more then they'll drive the price through the ask price and keep paying a higher and higher ask.

Answer 5

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