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What is Quoted Price and Why is it Important

21 Sep 2023

Introduction

Understanding pricing nuances is crucial to the complex and dynamic finance world. One essential concept that often comes into play is the quoted price. This article delves deep into what a quoted price is and provides an example from the Indian stock market.

What is the quoted price?

A quoted price is also known as a bid-ask price. It is the current market price at which a stock or bond is up for sale or purchase. It is the best available price for buyers and sellers at any given moment.

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  • Bid price

It is the highest that buyers are willing to pay for a security.

  • Ask price

Conversely, the asking price is the lowest sellers are willing to part with their security.

The distinction between the bid and ask, known as the bid-ask spread, represents the cost of trading and is a source of profit for market makers and brokers.

Example of a quoted price:

Let’s consider you are interested in purchasing shares of a company, XYZ Ltd. On a trading platform, you see the following quoted price:

Bid price: ₹500

Ask price: ₹502

In this scenario:

  • The bid price of ₹500 is the highest at which potential buyers are willing to pay for XYZ Ltd shares.
  • The asking price of ₹502 is the lowest at which sellers are willing to sell their shares at XYZ Ltd.

If you decide to buy shares of XYZ Ltd, you would likely pay ₹502 per share. Conversely, if you were looking to sell your existing shares of XYZ Ltd, you would receive ₹500 per share.

Quoted price: Key considerations

Some crucial things to remember about a quoted price are:

  • Volatility

Quoted prices can be highly volatile, especially for stocks of companies with high trading volumes. It's important to remain prepared for sudden price fluctuations.

  • Bid-ask spread

The bid-ask spread is the cost of executing a trade. A narrower spread is preferable, as it minimises transaction costs.

  • Liquidity

Highly liquid securities often have smaller bid-ask spreads, making them more attractive to traders. Illiquid securities can have wider spreads and may be riskier to trade.

  • Market orders vs. limit orders

Traders can either choose a market or limit order. A market order gets executed immediately at the prevailing quoted price, while a limit order allows specifying a price to buy or sell.

The takeaway

Understanding the quoted price is fundamental for anyone involved in financial markets. It showcases the current market price at which assets are bought and sold and plays a vital role in trading and investing. Considering the bid-ask spread, market conditions, and other factors help traders navigate quoted prices confidently.

 

Related Articles: What is Effective Annual Interest Rate | Difference Between Current Ratio and Quick Ratio | What Is a DRIP And Its Type | What is the Negative Volume Index

 

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