If you are new to stock trading or struggle to make the correct decisions, you can search online for the best stock websites and read through their content. Making excellent investment choices should not involve guesswork.
You may run into trouble if you do not know the difference between simple terms like ask size vs. bid size. You need knowledge and skill to determine the correct stock prices and when to buy or sell your shares to get the maximum benefits.
Ask Size vs. Bid Size: Definitions
A bid size is the minimum number of shares or amount of security that you would be willing to buy at a specified price during a given period as an investor. It is sometimes known as quote size. And the term tends to be used when blocks of shares are on offer for trading.
When there is a high bid size for particular company stock, many people want to acquire more shares of that company.
Bid size is a term that gets used together with phrases like bid price. A bid price is the maximum amount of money you would be willing to spend to buy a specific number of shares at a given time if you are an investor.
For example, if an investor states that they want to buy 1,000 shares of company stock A at $25, the bid size, in that case, is 1,000. But the bid price is $25.
On the other hand, an ask size refers to the number of shares that the seller is offering at a specified price. So, if a seller offers a large ask size, it means that the market maker is willing to part with more shares if the price is right. However, if they offer fewer shares, it means they want to hold onto their investment.
The term “ask size” tends to go hand-in-hand with ask price. The latter is the minimum amount the seller is asking for to part with their shares at any given time.
For example, suppose a seller states that they would be willing to sell 500 shares at $50. In that case, the ask size is 500. And the ask price is $50.
Ask Size vs. Bid Size: Implications
If the bid size of company stock is larger than the ask size, it indicates more demand for that stock than what is available. And it implies investors who own those shares are reluctant to part with them because they consider them valuable at the time. However, a more significant bid size is likely to spur some investors to sell their shares so they can make money. But that depends on whether the buyers can meet the seller’s ask price.
However, if the ask size of a particular stock is larger than the bid size, it indicates that the security for sale is not in as significant demand as the seller would like it to be. And most likely, their ask prices would be much lower than the bid ones. It is the law of demand and supply in action. So, the seller can cut their losses and get rid of them at the current market price.
Ask Size vs. Bid Size: Price Differences
You may have a seller and a buyer who have similar common stock ask and bid sizes. However, their bid and ask prices may differ significantly at a given point in time. Most likely, the bid price will be lower than the ask price. That difference by which the ask price exceeds the bid price is known as a spread.
Typically, bid-ask price spreads do not factor much in highly liquid securities like mutual funds since valuations are done daily. Neither do they matter much concerning highly traded stocks.
However, the bid-ask spread can significantly affect trading for securities with low liquidity or those trading at low volumes, such as common stock for small companies. And if the ask size for a company stock is smaller than the bid size within the market, the seller will be in an advantageous position.
Buying at Bid or Ask Price
Whether you buy shares at the bid or ask price depends on how badly you need to own particular company stock. If you think a stock is overvalued and are not desperate to hold the company stock, you can wait until the shares reduce in price so you can buy them at the bid price. However, if you feel the stock in question is worth having now and may increase significantly in value soon, you could give the seller what they want and pay the ask price.
It helps to understand what the bid and ask sizes have to do with the demand and supply of shares and how they influence your share values. That’s because, as an investor, you will find yourself setting a bid or ask price at some point.
In the end, though, you may have to settle for the current stock price at the time of the sale. And that value is likely to be a compromise between what buyers and sellers want.