Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ====== Asks ====== Asks (also known as the '[[Offer Price]]') represents the minimum price a seller is willing to accept for a [[security]], like a stock, bond, or option. Think of it as the "sticker price" on the shelf in the financial marketplace. If you want to buy a share of a company //right now//, the ask price is what you'll have to pay. This price is always presented alongside its counterpart, the [[bid price]], which is the highest price a buyer is willing to pay. This duo of bid and ask prices forms the fundamental basis of trading on any exchange. The prices aren't random; they are typically set by '[[market maker]]s' or aggregated from all the current sell orders in the market. The ask price is dynamic, constantly shifting based on supply and demand, news, and overall market sentiment. For an investor, the ask price is your cost of entry into an investment. ===== The Ask in Action: The Bid-Ask Spread ===== You will never see an ask price in isolation. It's always part of a pair, creating what is known as the [[bid-ask spread]]. This spread is simply the difference between the highest bid price and the lowest ask price. For example, if a stock has: * A bid price of $50.25 * An ask price of $50.30 The bid-ask spread is $0.05 ($50.30 - $50.25). This tiny gap is hugely important. It represents the implicit cost of trading and is the primary way market makers earn their keep. They buy from sellers at the lower bid price and sell to buyers at the higher ask price, pocketing the spread as their profit for providing [[liquidity]] and facilitating the trade. For you, the investor, this spread is a transaction cost you pay without it ever appearing on a commission statement. ===== Why the Ask Price Matters to a Value Investor ===== For a disciplined [[value investing]] practitioner, understanding the ask price and its implications is crucial. It's not just a number; it's a piece of a larger puzzle. ==== The Cost of Entry ==== Value investors are obsessed with buying assets for less than their intrinsic worth. Every fraction of a percent matters. The ask price is your direct purchase cost. A wide bid-ask spread means you are immediately "down" on your investment the moment you buy. In our example above, you buy at $50.30, but the highest price anyone is willing to pay for it at that same moment is $50.25. Your investment has to climb by $0.05 just for you to break even. For large positions or in less-traded stocks where spreads can be much wider, this "entry fee" can significantly eat into your potential margin of safety and long-term returns. ==== A Clue to Liquidity ==== The size of the bid-ask spread is a fantastic barometer for a stock's liquidity. * **Narrow Spread:** A tight spread (e.g., a penny or two for a large-cap stock) indicates high liquidity. Many buyers and sellers are actively trading, making it easy to enter and exit positions without significantly affecting the price. * **Wide Spread:** A wide spread suggests the opposite—low liquidity. This is common in smaller companies, over-the-counter stocks, or during times of market stress. For a value investor, this can be a red flag. It might be difficult to build a meaningful position without pushing the ask price higher, and even harder to sell later without tanking the bid price. A savvy investor always checks the spread before placing a trade. To avoid paying a high ask price, especially in a volatile or illiquid market, you can use a [[limit order]]. This type of order allows you to specify the maximum price you are willing to pay, giving you control over your entry point and protecting you from paying more than you intended.