Understanding Bid and Ask Size on a Stock Quote

Stock quote numbers are important for investors

Reviewed by Charles Potters

When looking at stock quotes, there are numbers following the bid and ask prices for a particular stock. These numbers usually are shown in brackets, and they represent the number of shares, in lots of 10 or 100, that are limit orders pending trade. These numbers are called the bid and ask sizes, and represent the aggregate number of pending trades at the given bid and ask price.

Key Takeaways

• Stock quotes display the bid and ask prices along with the bid and offer sizes for the shares in question.
• The bid is the best price somebody will pay for shares (and where you can sell them), and the ask is the best price somebody will sell shares (and where you can buy them).
• The bid size and ask size indicate how many aggregate shares are available at each of those prices, respectively.
• The bid size and ask size are a combination of all pending orders in the market across all investors.
• The order book for a stock will show its depth and liquidity by revealing the next best bids and offers and their sizes.

Stock Quote Information

Using the example above on the left-hand side, assume we get a stock quote for MEOW Corp. and we see a bid of $13.62 (x3,000), and an ask of $13.68 (x500).

The bid price is the highest price somebody is willing to purchase one share of MEOW stock, while the ask price is the lowest price that somebody is willing to sell one share of the same stock. As you can see, there are also numbers following the bid and ask prices. These are the number of shares available to trade at those respective prices. These are known as the bid size and ask size, respectively.

Difference between Bid and Ask Size

The bid size is the total amount of desired purchases at any given price, and the ask size is the total amount of desired sales at a given price. The bid size is determined by buyers, while the ask price is determined by sellers. In fast-moving markets, these sizes are constantly changing.

At the current limit bid price of $13.62, there are 3,000 shares available to be sold at this price. This quantity is an aggregation for all buy orders entered at that bid price, no matter if the bids are coming from one person bidding for all 3,000 or three thousand people bidding for one share each. The same is true for the numbers following the ask price.

Depth and Liquidity

Now consider the figure above on the right-hand side. This shows MEOW’s order book, also known as a Level 2 quote.

Say you would like to buy 3,000 shares of MEOW. You can purchase the 500 shares offered at 13.68 immediately, paying more than the $13.62 per share you originally desired, but that leaves you with 2,500 shares unfilled. If you set $13.68 as a limit, your bid for 2,500 will become the new best bid price. However, if you need a fill right now, you could instead enter a market order.

The figure on the right shows the depth and liquidity in the MEOW order book. As shown, the next offer is for only 20 shares at $13.80, and 60 more at 13.83. You can buy 737 more shares, clearing offers up to $13.95. The last of your order would be filled at $14.00 where there are 2.2 million shares for sale.

In this scenario, MEOW shares don’t seem to have a great deal of depth. The prices at each ask level are quite a bit away from each other, and there aren’t many shares being offered at some ask prices. Based on these conditions, MEOW would be considered as having low depth (since there wasn’t many ask price levels) and low liquidity (as we had to jump across multiple ask price levels to have our entire order filled).

Other Considerations

Orders are normally day orders, meaning if they are not filled by the end of the trading day they will expire unfilled. If the investor wishes the order to carry over to the next trading day and beyond, until it is filled, they must submit a good ’til cancelled order.

The spread between the two prices is called the bid-ask spread. If an investor purchases shares in MEOW, they would pay $13.68 for up to 500 shares. If this same investor immediately turned around and sold these shares, they would only be sold for $13.62. The bid-ask spread is usually larger for higher volatility securities as well as for securities with lower trading volume.

What Does It Mean When the Bid Size Is Larger Than the Ask Size?

When the bid size is larger than the ask size, more orders to buy at a specific price are being placed compared to orders to sell at that same price.

Should I Buy At Bid or Ask Price?

If you want your order to fill immediately, you should place a market order which will fill at the lowest ask price. However, if you don’t want to pay that price, you should place a limit order at your desired price.

What Is The Difference Between Bid Size and Ask Size?

The bid size is the number of shares investors are trying to buy at a given price, while the ask size is the number of shares investors are trying to sell at a given price. Differences in the size amounts suggest future movements in stock prices. For example, if the number of asks is substantially greater than the number of bids, this suggests more investors are attempting to sell shares which may potentially drive the security’s price down.

Read the original article on Investopedia.