Stock Market
When trading in a stock market, a person who has shares to sell may not wish to sell them at the current market price (quote). Likewise, a person who wishes to buy shares may not wish to pay the current market price either. Some negotiation is necessary in order for a transaction to occur.
The negotiation often comes in the form of adjusting the bid prices and the ask prices as the value of the share goes up and down. For example, if the share is worth $10, a buyer may "bid" $9.97 (3 cents less), and a seller may ask for $10.02 (2 cents more). If the value of the stock goes down, a seller may be forced to reduce his asking price. Conversely, if the value of the stock goes up, a buyer may be forced to increase his bidding price.
Most of the time, the bid and ask prices remain very close to the market value of the share, often separated by only a couple of cents. The difference between the bid and ask price is called the Bid/ask spread.
In actual trading, the parties involved might use a limit order to specify which bid or ask price he wishes to trade at. The trader specifies the number of shares and his bid/ask price (depending on whether he is buying or selling). Such orders can have execution limits, such as "by end of day" or "all or nothing".
Read more about this topic: Price Mechanism
Famous quotes containing the words stock and/or market:
“In the case of our main stock of well-worn predicates, I submit that the judgment of projectibility has derived from the habitual projection, rather than the habitual projection from the judgment of projectibility. The reason why only the right predicates happen so luckily to have become well entrenched is just that the well entrenched predicates have thereby become the right ones.”
—Nelson Goodman (b. 1906)
“Forbede us thing, and that desiren we;
Preesse on us faste, and thanne wol we flee.
With daunger oute we al oure chaffare:
Greet prees at market maketh dere ware,
And too greet chepe is holden at litel pris.”
—Geoffrey Chaucer (1340?–1400)