Quotes

15 07 2011

To see the price at which a security is trading, traders need to refer to a quote. A quote could be a purchase price or a sale price. It could also be a two-way quote. A two-way quote comprises a bid price (the purchase price) and an offer price (the sale price). The bid price is the price a counterparty is willing to pay you in case you want to sell your securities to that party. The offer price is the price the party is asking for in case you want to buy securities from that party.

The offer price will logically be higher than the bid price. When you ask for a quote, for example, you will get a figure such as £54.10/£54.15. In a two-way quote, the first price is the bid price. In other words, £54.10 is the price you will get if you want to sell your securities. If you want to buy, the trader will sell that security to you for £54.15. The difference between the bid price and offer price is called the spread. The spread is the profit the trader makes by providing a two-way quote and doing a round-turn transaction (both buy and sell) at that quote. In this example, the spread is £0.05.

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