The prices for stocks (and other items that trade on markets) get decided by an auction system.
On the surface, it may seem like a stock has a single price. You log into your brokerage account or you google a stock price. You're shown that one price...the market price. Basically, this figure represents the most recent price the stock sold for. It looks similar to an item selling on Amazon, just the product with a price. Either pay that price or don’t buy it.
But, behind the scenes, there exists a more dynamic system comprised of bids and asks.
A bid represents someone declaring to the market, "Hey, I'd buy this many shares at this price." An ask consists of someone making a similar declaration about how many shares they'd be willing to sell for a particular price. Bids get matched with asks...that process sets the market price.
The term "Market Versus Quote" describes the difference between the most recent market price (that's the "market" part) and the current bid and ask prices (the "quote," in Wall Street lingo).
It works like this: you've got DIS trading at $130 a share (the market price). Meanwhile, the last bid came in at $129.75 and the most recent ask called for a price of $130.25. Those figures compute to an MVQ of $0.25. The market price for DIS is $0.25 off the most recent bid/ask for those shares.
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Finance: What is Spread?48 Views
finance a la shmoop. what is spread? before we start just no. get your mind
out of the gutter. spread refers to the money value between [100 dollar bill]
a bid and ask price under a market maker structure of trading securities. no more
wire hangers, a plastic hanger company is publicly traded on an exchange like
Nasdaq where buyers bid for a price to purchase and sellers ask for a price to [Nasdaq wall shown]
trade. no more wire hangers is bid this moment at 37:23 a share by buyers
willing to buy right now at that price and is being asked at this moment at a
price of 37.31. note the eight cents a shared difference in the share prices.
that dif is the spread between the two prices, and it's worth noting that in [bread is buttered]
extremely volatile stocks, the spread widens. and in boring highly liquid
stocks which don't move much, the spread tightens or is narrower. that is on a
volatile equivalent of no more wire hangers the spread might grow to 20 or
30 cents a share whereas a boring name that pays a big dividend and the stock
never moves much we're thinking AT&T here, [man snores at a desk]
well that spread might be just three or four cents. so why grow? well because a
market maker in a volatile stock doesn't want to be caught losing money on her
inventory. if no more wire hangers suddenly gapped down to 37.10 a share [equation shown]
well it would be likely less than the average of what the market maker paid
for her quote "inventory" unquote in that stock from which he was making a market
in it. each time the shares trade the market makers dip into that spread to [woman dips cracker in butter]
pay their bills and allow them to keep doing business. so that's spread. and it's
not the type that Prince used to sing about. [man on stage]
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