How to Understand a Stock Quote

Stocks are literally a ticket to own and be a part of the story of a business. Shares can be obtained by just about anyone willing to take a chance with their investment dollars, and those shares reflect many interesting, nuanced things about the company. Let’s dive into how to understand a stock quote.

Understanding Stock Quote Data

When a buyer or seller places an order for a specific stock several key pieces of information need to be included, such as the security of interest, its ticker symbol, the price that the buyer or seller is willing to pay for or sell the shares at, and the quantity of shares to buy or sell.

Below is an example of what a stock quote looks like, using a historical example, to illustrate the concept. Note that this information is meant to be education only and not reflective of any current market prices.

The bid and ask prices shown on a stock quote represent the highest bid price and the lowest ask price for the security in question. In this sample case of Microsoft Corp. (MSFT) above, the highest price that buyers are willing to pay is $46.39. On the other hand, sellers are only willing to sell shares for $46.40.

Many stock quotes will also show the number of shares that are available for trading at both the bid and the ask price. Stock prices are subsequently determined by changes in supply and demand. As more investors demand to buy shares, the price of the security rises. As more sellers become available, the increased supply in shares available will then send prices lower.

The data point found in the “last trade” field is the price at which the last trade was executed. This figure is often compared to the closing price from the previous session. After a trading session is closed, the last traded price is used to create various charting types such as the line chart.

The opening price is the first trade price that was recorded during the day’s trading. This figure is often used in relation to the current price or the closing price from the previous trading session in an attempt to quantify the stock’s movement.

Typically, the previous closing price will be the next session’s opening price, but this is not always the case. A sharp change between the last traded price and its open generally suggests that a stock is experiencing strong momentum, either positive or negative depending on whether the current session’s opening price is higher or lower than the previous session’s closing price. It often represents an interesting trading opportunity. The day’s high and low are also common data points found within a stock quote. This data is generally used by traders as a measure of volatility.

How Does Quote Data Appear on a Stock Chart?

One of the most popular charting types incorporates stock quote data by highlighting the open, high, low, and close. As you can see from the chart below, the notches on the bar indicate the price levels where MSFT opened and closed.

The left bar represents the open while the right bar represents the close. You’ll also notice that in the situation where the close is below the open, the bar will usually be colored red. Furthermore, the top of the bar represents the day’s high while the lowest point on the bar represents the day’s low.

Statistics and Ratios

Digging a little deeper into the numbers on a stock quote can reveal even more useful information and be extremely beneficial when comparing companies in similar industries. The market capitalization (or market cap) is the total dollar value of all the company’s outstanding shares.

Shares short is the number of shares that are being sold short. These are shares that are borrowed with the hopes that they will go down in price. Short interest as a percent of shares outstanding conveys what percentage of total outstanding shares are sold short, but haven’t been covered or closed yet. Investors use this figure to forecast the direction of the particular stock, or the market in general, and to assess investor sentiment. 

The dividend, a distribution of company earnings to shareholders, represents the amount paid out per share. The ex-dividend date is essentially the cut-off date to which a holder of the stock is entitled to a dividend payment. If purchased on this date or later, the holder will not receive the dividend.

The pay date will be the day the dividend will be paid to shareholders, while the dividend yield is the percentage paid out per share on an annual basis relative to the share price.

Earnings per share is the sum of earnings paid per share in the last 12 months. The price-to-earnings ratio, or P/E, is a ratio that measures the level of earnings received in regards to price. This ratio can be effective in determining which companies are of greater value. Typically, a lower P/E is ideal when analyzing companies categorized in the same industry. 

Meanwhile, beta measures a security’s sensitivity to the overall market. For example, a beta of one means the stock moves with the market, while a beta of 1.1 indicates the stock moves 10% more than the market.

Note

A narrow spread typically indicates high liquidity, while a wide spread can signal lower liquidity and higher trading costs.

Market Order Vs. Limit Order

Market orders and limit orders are two types of stock orders. A market order is an instruction to buy or sell a stock immediately at the current market price. This type of order means the transaction is executed quickly, as long as there is a buyer or seller available. The primary advantage of a market order is speed—it allows investors to enter or exit positions quickly. However, the downside is that the final price is not guaranteed. If the market jumps at just the wrong time, you could pay a lot more than you’d have expected.

On the other hand, a limit order allows you to specify the maximum price you are willing to pay. The order will only be executed if the stock reaches the set price, which offers more control over the transaction price. However, the tradeoff is that the order may not be filled if the stock never reaches the specified price. For example, if you set a limit order only to buy a stock at $75, you may only get locked in if the price drops this low. If the price only drops to $78, you may not get an order placed.

What Does the Stock Price Represent?

So, what exactly does the price of a share of stock mean? A stock’s price is a reflection of a few things. Most simply, it’s the value in which investors and analysts anticipate the value of future free cash flow discounted to the present. The stock price isn’t random; it’s a reflection of what the company will earn in the future at a given discount rate.

The stock price is also impacted by a company’s market capitalization. Say, for example, a company only has one share of authorized and outstanding stock. That company’s stock price is going to be high for no other reason than the future cash flow is not being divided across shares. That does not mean the company is doing better than other companies that have lower stock prices; it just means it’s not dividing up it’s “pie” of future earnings. Companies that have many shares authorized will have a lower stock price for no other reason than their future earnings are being sliced into more pieces.

What Is a Stock Quote?

A stock quote provides real-time information about a company’s stock price, including the bid, ask, volume, and other relevant data. It reflects the current market value of a stock and can fluctuate throughout the trading day.

What Is a Ticker Symbol?

A ticker symbol is a unique identifier for a particular stock or security, typically consisting of letters representing the company. For example, “AAPL” is the ticker symbol for Apple Inc.

What Is the Bid Price?

The bid price is the highest price a buyer is willing to pay for a stock. It reflects the demand for a stock and is one side of the buying-selling transaction.

What Is the Ask Price?

The ask price is the lowest price a seller is willing to accept for a stock. It represents the supply side of the market and is the price at which an investor can buy the stock.

The Bottom Line

Stock quotes consist of many data points. It’s important that traders understand the key data points such as bid, ask, high, low, open, and close. Being able to analyze this pricing and trend data allows traders and investors to make better-informed trading decisions.

The key is to not allow the extensive series of numbers to discourage you when a quote shows information. Quotes are an excellent way to compare companies in industries that are alike. For some, these financial snapshots of numerical data for publicly traded companies can provide immediate perspective on whether or not a company is a worthwhile investment.