Your screen says a stock last traded at $50.00. The cheapest displayed seller wants $50.10. The best displayed buyer offers $49.90. Buy 100 shares and immediately sell them back at those quotes, and you lose $20 before fees.
Neither quoted price had to fall.
These are made-up prices for one stock. The puzzle comes from treating “the price” as one number. A past deal, a waiting buyer and a waiting seller can all have different prices.
Three prices answer three questions
The stock market brings buyers and sellers together. An order is an instruction to buy or sell shares. An order book lists waiting orders by price.
Here is our opening book at one instant, with the best prices first. Quantities are shares; prices are dollars per share.
| Bid shares | Bid price | Ask price | Ask shares |
|---|---|---|---|
| 100 | $49.90 | $50.10 | 100 |
| 300 | $49.80 | $50.20 | 200 |
The quote uses the first row's prices. Last records a separate, completed trade:
- Bid: $49.90. The highest displayed buying price. Accept the waiting buyer's price and you sell.
- Ask (or offer): $50.10. The lowest displayed selling price. Accept the waiting seller's price and you buy.
- Last: $50.00. The price of the most recent completed trade.
Last tells you what happened. Bid and ask tell you what is on offer. The bid-ask spread is the gap between them.
Last happens to sit in the middle here. As quotes change, a past trade can end up outside the gap altogether.
Quote size is the quantity available at a displayed price. The 100 beside $50.10 means 100 shares offered there, not the company's total share count.
Market depth is the quantity waiting across price levels, including the next 200 shares offered at $50.20. Price comes with a quantity attached.
The gap is a trading cost
$50.10 − $49.90 = $0.20 per share.
Freeze the opening prices for a round trip: buying shares and then selling them back. Trade exactly at those quotes, with enough shares on both sides and no fees.
- Buy 100 shares: 100 × $50.10 = $5,010 paid.
- Sell those 100 shares: 100 × $49.90 = $4,990 received.
You finish with no shares and $5,010 − $4,990 = $20 less cash. The loss comes from crossing the gap between the seller's price and the buyer's price.
With three shares, you pay $150.30 and receive $149.70 on resale. That is a $0.60 loss: three times the same $0.20 spread.
The midpoint, the average of bid and ask, is ($49.90 + $50.10) ÷ 2 = $50.00. In this book, nobody is offering a trade at the midpoint.
Buying at the ask puts you $0.10 above the midpoint; selling at the bid puts you $0.10 below it. Each crossing costs half the spread per share measured from the midpoint. The full $0.20 belongs to the round trip.
Commission-free does not mean cost-free. There is no separate “spread fee” on the bill: the cost is built into the two trade prices.
Follow the next buyer
Reset to the opening book. A new buyer takes all 100 shares offered at $50.10, with no other orders arriving, canceling or refilling.
The $50.20 seller did not raise their price. The cheaper offer ran out. The exchange matched orders; it did not choose a higher price for the stock.
Quotes can change without a trade, too. From the opening book, canceling the $50.10 offer instead of buying it would also leave $50.20 as the ask, while last would stay $50.00.
A larger purchase can use up one price level and continue into the next, paying more for the later shares. Buying 150 shares from the opening book would require reaching beyond its 100-share best ask.
Liquidity includes price and size
Market liquidity means being able to trade a meaningful amount promptly without greatly moving the price. A company's ability to pay upcoming bills is a separate question, covered by liquidity ratios.
For a separate comparison, use the same frozen-quote setup with a wider gap: $49.50 bid and $50.50 ask, with at least 100 shares on each side.
The midpoint is still $50.00, but the spread is $50.50 − $49.50 = $1.00. A 100-share round trip costs 100 × $1.00 = $100. Same midpoint, five times the spread cost.
A narrow spread alone is not enough, either. If little size waits at the best price, a larger order reaches worse prices sooner. Trading volume counts shares already traded; depth describes interest still waiting.
Outside the regular US session, liquidity can be lower and spreads wider; market hours explains why.
Read the quote before the order
Our table is a simplified book. Real US trading spans many venues, and some orders are hidden. A screen quote can be delayed or change before your order arrives; the SEC's execution guide explains why.
Before sending an order, check the timestamp, both prices and available size. Compare your quantity with the size on the side you would trade against: the ask when buying, the bid when selling.
Then decide whether a quick trade or a firm price matters more to you. Order types compares those choices using the same sell levels.
A useful price has a side, a size and a time.
In short
- Last describes a completed trade. Bid and ask describe waiting offers.
- The spread is ask minus bid: $0.20 a share here, or $20 for a 100-share round trip at unchanged quotes, before fees.
- A displayed price has a quantity attached; a larger order can reach worse prices.
- A narrow spread is only part of liquidity; available size matters too.