In the stock market, "bid" and "ask" refer to offers to buy and sell shares at a given price. The number of shares that traders are offering to buy at a specific price is the "bid size"; the number of shares available for sale at a specific price is the "ask size."
In basic terms, the bid price of a stock is the price buyers are offering to pay, while the ask price is the price that sellers are seeking. You can assume the ask price will always be higher. When a stock exchange facilitates a trade, the seller receives payment equal to the bid price; the buyer, meanwhile, pays the ask price. The difference between the two prices is the "spread," and the middlemen who arrange the stock trade collect this as their fee. On some stock markets, such as the New York Stock Exchange, computers or intermediaries known as specialists match buyers and sellers. On others, such as the Nasdaq, trades are facilitated by "market makers," who maintain an inventory of stocks and buy and sell shares out of that inventory.
In any marketplace, not all buyers are willing to pay the same price and not all sellers are willing to accept the same price. That's where bid size and ask size come in. Say you place a bid for 300 shares of a certain stock for $10 apiece. Thus, your bid size at $10 is 300. But right now there are 100 shares available at $10.05, plus 50 available at $10.10 and 1,000 others available at $10.25. In other words, there is an ask size of 100 at $10.05, an ask size of 50 at $10.10 and an ask size of 1,000 at $10.25. The bid and ask prices quoted by stock exchanges represent the highest current bid price and the lowest current ask price. So in this case, the quoted ask price will be $10.05. Exchanges "fill" trades by matching the highest available bid with the lowest available ask. When the exchange reaches the limit of the bid or ask size at a given price, it moves to the next-best price. So even though the quoted ask price is $10.05, you can't get that price for your entire order because the ask size at that price is only 100 shares. You're going to have to pay $10.10 for 50 shares of the order and $10.25 for the final 150 shares. Of course, if someone else comes in with a bid price of $10.01 and a bid size of 300 shares, then that person will get the lower-priced shares and you'll get stuck paying $10.25 a share for your entire order.
Reading the Sizes
A large bid size generally equates to high demand for a stock; a large ask size translates into high supply. When the bid size for a stock is larger than the ask size, demand outstrips supply and it's likely that the stock price will rise On the other hand, an ask size larger than the bid size indicates an oversupply of the stock, in which case the price is likely to fall.
Capitalizing on Mismatches
Since mismatched bid and ask sizes suggest future movements in stock prices, it would seem like there are easy profits just waiting to be made by buying stocks on the way up or by "shorting" those on the way down. The reality is quite different. Bid sizes, ask sizes and prices are constantly in motion. As the financial advice site The Motley Fool notes, mismatches can disappear in an instant, so this is a game best left to market makers and highly sophisticated traders.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.