InvestorQ : Can you throw some light on bid and ask prices while trading stocks?
Angel dcosta made post

Can you throw some light on bid and ask prices while trading stocks?

Answer
user profile image
Moii Chavate answered.
2 years ago


Trading on the Indian stock markets is on a best deal basis. There are potential buyers who bid (buy) and potential sellers who give ask (sell) prices. Therefore if you want to sell your stock, then your trade will get executed on the basis of the best bid available from the opposite side. Similarly, if you want to buy the stock, then your trade will be executed on the basis of the best ask available from the opposite side. Remember, the trading system is automatically designed to give you the lowest available price when you are buying and give you the highest available price when you are the seller. The chart below captures the bid-ask screen for a stock on the NSEā€¦

In the above example, this is the bid-ask screen that you will get to see on your trading terminal. If you place an order to buy 2000 shares at market, then you will get 2000 shares at Rs.4.00, assuming that nobody else comes between your price-time-priority. But if you place an order on market to buy 3200 shares, then you will get 2000 shares at Rs.4.00, 1000 shares at 4.05 and 200 shares at 4.20.

On the other hand if place an order to sell 1500 shares, then you be able to sell 1000 shares at Rs.3.50 and 500 shares at Rs.3.40. Of course, the real market is a lot more complicated as quantity and price changes every millisecond because thousands of players are trading the stock at the same time. The quantity you see on the screen is not the correct reflection of demand and supply because the trading screen also allows you to put hidden orders by disclosing just 10% of your actual order size on the screen. But, the basic logic of the screen is that the trading system ensures that you get the best possible deal, irrespective of whether you are the buyer or the seller of the stock.