A Beginner's Guide to the Stock Market

by Matthew R. Kratter

This is because every stock has a bid price and an offer (or "ask") price. The bid is the price at which someone is willing to buy the stock. The offer is the price at which someone is willing to sell the stock. Memorize this phrase right now: “You sell to the bid, and you buy from the ask.” The distance between the bid and the ask is called the "bid-ask spread." A liquid stock like Microsoft (MSFT) or Apple (AAPL) will have a bid-ask spread of just a penny. So right now as I'm writing these words, there is someone at the bid for Microsoft who is willing to buy 2,200 shares for 120.25. And there is someone at the ask who is willing to sell 1,200 shares for 120.26. That's a bid-ask spread of just a penny ($0.01). A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two.