What Is Ask?
Let me explain the ask directly: it's the price a seller is willing to accept for a security, often called the offer price. When you see an ask quote, it might include not just the price but also the amount of the security available at that price. Remember, the bid is what a buyer is willing to pay, and the ask is always higher than that.
Understanding Ask
You encounter the terms 'bid' and 'ask' in almost every financial market worldwide, from stocks and bonds to foreign exchange and derivatives. For instance, in the stock market, an ask might look like $5.24 x 1,000, meaning someone is ready to sell 1,000 shares at $5.24 each.
Key Takeaways
- An offer price is another term for ask price.
- A bid price is always lower than the ask price.
- The difference between a bid price and ask price is called the spread.
- Different markets have different spread conventions, which reflect transaction costs, the value of a single point, and liquidity.
The Role of Spreads
The ask is always higher than the bid, and that difference is the spread. A wider spread makes it tougher for you to profit because you're buying at the high end and selling at the low end. Importantly, spreads can widen sharply during volatile trading or when there's uncertainty about price direction.
Stock Market Spreads
Back in 2001, stock prices shifted from sixteenths to decimals, dropping the smallest spread from 1/16 of a dollar ($0.0625) to one penny. The actual width of a spread depends on the stock's price—for example, a two-cent spread on a $10 stock is 0.02%, but on a $100 stock, it's just 0.002%.
Foreign Exchange Spreads
In the wholesale forex market where institutions trade, spreads are tight and vary by currency due to point values. For EUR/USD, a typical spread is 1 to 2 points, like a bid of 1.3300 and ask of 1.3301, where one point on a $10,000,000 trade is worth $751. At 110 JPY/USD, it's $909 per point on the same size. For cross-currencies like EUR/JPY or GBP, spreads are two to three times wider due to lower volume and higher volatility. In retail forex, electronic systems have tightened spreads to 3-10 points, giving small traders access to competitive prices once reserved for big players.
Bank Note Spreads
Buying and selling physical banknotes in foreign currencies operates in a separate market from wholesale or retail forex, and here spreads are much wider—typically 75 pips or more.
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