When we go to the market, we see things, and when we like things, we start negotiating. The negotiation begins with the bid of the price. Of course, we do not have such a chance when we go to the shopping malls, where the price is fixed and attached to the tags.
However, when we deal with the stock, which is also one kind of property that we buy to sell in the future, two prices are existing.
When we see a stock, when we believe that it is a potential stock that is useful for future trading, then it is entirely possible that we bid at the particular price. The price at which we quote to buy the stock is called the bid.
Ask is also the price associated with the price that is associated with the targeted stock that we are planning to buy and for which we started negotiating.
After the stock is decided to take, we bid one price for the stock, and there is one price associated with the share, and these two prices are existing with the share together. The important point to consider here is that while selling, we are going to pay the price of Ask, but the price for which we bid the stock.
For example, let us say that we are planning to buy Facebook shares. It is the known fact for all of us that the stock price keeps varied every single moment and every minute, or even every second.
Let us say the bidding price is 50 90
And the asking price is 50 98
Through two prices are existing and associated with the stock that we are planning to purchase, we are going to buy the share at the cost of the Ask, so at the price of, 50 98, but not the bidding price, which is 50 90
So, the question is, what is the difference price, and where does the difference price go?
The difference in the cost of bidding and asking price is as follows.
50 98 – 50 98 = 8 cents
Where do the 8 cents go and who is going to use these 8 cents of money. The 8 cents of the money is deducted or charged along with the bidding price because this money is charged towards the execution of the stock and goes to the people, who work on the trading floor.
After you purchase the stock, if you want to sell the stock immediately, and if the stock price does not change, then you got to sell that off the stock at, 50 90, and eventually, we are going to lose that 8 cents. Though it is only 8 cents per single piece of share or stock, it is going to be huge, when you deal with the hundreds or thousands of shares. When we buy and sell the shares immediately, it is more likely that we lose a lot of money.