How to Read the Ask Price to Buy Stocks

While there are many different stock exchanges around the world, and in the United States, the best two known are the NASDAQ and the New York Stock Exchange (NYSE). Unlike the NYSE, the NASDAQ has a bid and ask price by the stock.

Instructions

1. Understand that the ask price is the lowest price a market maker is willing to take for a stock. Market makers are people that deal with specific stocks. They hold them and then will either buy or sell, according to demand. They compete against each other.

2. Know the best ask price is shown, and the amount of stocks that they are willing to sell at that price.

3. Calculate the difference between the bid and the ask price, which is the dealer's profit. The bid is like the offer that an investor will make on your home. He will pay that amount but the next day "ask" a higher amount from a potential purchaser.

4. Read the quote knowing that the prices are put in dollars decimals, as opposed to cents. If you are looking at a stock that sells for 27.9, it would mean that it is $27.90 per share. In order to buy 100 shares, you would need $2790, plus the cost of the trade.

5. Realize that the price of the stock is not necessarily the true value of what the company is worth, but merely what people believe it is worth and are willing to pay for it. Stocks sometimes go up and down on rumor. Sometimes they just go up and down, for no apparent reason, except that public is willing to buy.

Tips & Warnings

• The ask price is also called the offering price.

• The New York Stock exchange works as an auction market, where prices are bid up, and if not, dropped, so you see only one number.

• The more frequently traded stocks tend to have smaller profit margins, because the dealers work more on volume. This will show up by the bid and ask prices being close together.