Stock prices are set on the stock market- it is a negotiation process between the buyer and the seller. Not knowing what an ask or bid price is can cost you big time, so make sure that you educate yourself thoroughly. Understand the difference between the two, and what is meant by “the spread.”

First, the ask price: ask price is the amount that is set by the seller. The seller will post a price on the offered stock. A savvy seller will know number one, that they will not get that price right off, and number two will know how to set the ask price high enough that they will still do well during negotiation, but not high enough to completely scare off all buyers.

The bid price is the price suggested by the buyer. This is the price that the buyer will want to pay for the sought after stocks. Again, careful negotiation is key here. The buyer will want to have a bid that is reasonable, but low enough to be comfortable. A bid that is too low will be ignored. Set the bid price too high, and you eliminate negotiation space.

The spread is the difference between ask price and bid price- the goal is to make that gap work to your own best advantage. You must realize that the spread also goes to the broker and for other fees.

You must also realize that the price is not set before a trade begins- it will not be finalized until there is careful negotiation between the parties, usually through an intermediary. This is one of the actions where fees are a necessary evil, so that the proper trade actions can be taken, even though it will cut into your profit margin. A good financial planner can advise you in this area, not only on which stocks to avoid, but which are hot at the moment and should be pushed for.

The planner can also give you advice on what your price should be, from either side of the table. The longer the negotiation goes on, the more fees will compile, so make sure that you make a solid, careful offer to either buy or sell a chosen stock before making that first bid. If you allow the spread to get too small, there will not be enough to cover the cost of your management fees, too large and you will not have any profit margin at all. Know what you are willing to pay, bottom line and stick as close to that as possible.

Do you dream of making great money with the stock market, either as a frequent trader or a long term investor. The way things are, especially in today’s market conditions, the stock market isn’t territory you want to try and navigate without the best information at hand. At ForexStockTrading.org we aim to provide you with the knowledge and tools you will need to become successful in the Stock Market.

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