When we check in on the stock market, it can seem like there is just one price for each stock. We look up Microsoft, for instance, and see it's trading at $100.86 per share. That's the price for the stock. Just like a Big Mac costs $5, MSFT stock costs $100.86.
But the price for the stock is more complicated. The price you see at any given time is the result of complex interplay that takes place in the background. That system consists of a series of "bids" and "asks."
Bids consist of people wanting to buy the stock and listing the price they are willing to pay. You might give a bid for MSFT of 1,000 shares at $100 per share. Meanwhile, asks consist of people wanting to sell the stock, and giving the price they want to get. So someone might offer 1,500 shares of MSFT for $101 per share.
All the bids and asks (continuously updated and fluidly appearing, disappearing, and changing) get consolidated into the list price shown when you google the stock price.
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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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Spread to treasuries is an indication of risk associated with a given debt or bond offering.