Stock Market Foundations · Stocks Explained
A quote has two sides
The bid is a price at which a buyer is willing to buy. The ask is a price at which a seller is willing to sell. Their difference is the spread. The last traded price records a transaction and may not be available for your order.
Available quantity matters. A small order may fill near a displayed quote while a larger order consumes several price levels. Quotes can change before your instruction reaches the market.
Choose the condition you control
A market order prioritises execution but does not guarantee the price. A limit order sets the maximum purchase price or minimum sale price, but it can remain unfilled. A stop order generally becomes a market order when triggered and can execute far from its trigger during a gap.
A stop limit instruction adds a price limit after the trigger. That can prevent an unacceptable execution price while leaving the investor exposed if the order never fills. Specific handling differs by broker and venue.
Calculate an execution example
Imagine a bid of $49.90 and an ask of $50.10. A buyer who purchases 100 shares at the ask and immediately sells at the unchanged bid loses $20 before commissions. The spread is a trading cost even when the broker advertises no commission.
If only 40 shares are offered at $50.10, a market order for 100 shares may fill the remaining quantity at higher prices. A limit of $50.10 avoids paying more but may leave a partial fill.
Use an execution checklist
Check the exchange, currency, trading session, order duration and whether the quote is delayed. Review the confirmation for actual quantity, average price and charges. Do not confuse an accepted order with a completed trade.
For illiquid or volatile securities, think about the cost of waiting as well as the cost of immediate execution. No order type removes the economic risk of owning the shares.
Try it yourself
An investor submits a purchase limit of $25 while the lowest available ask is $25.20. Is immediate execution guaranteed?
Show the worked answer
No. The order can execute at $25 or below if compatible sellers become available. It may remain unfilled, and a displayed last trade of $25 does not change that condition.
Further reading
Educational material. Examples are hypothetical and do not recommend a security or a personal allocation.
