The bid and the ask
Every stock has two prices at any moment. The bid is the highest price anyone is currently willing to pay. The ask is the lowest price anyone will currently accept. The gap between them is called the spread. A trade happens when someone accepts the other side's price — a bidder lifts the ask, or someone offering shares hits the bid.
Two ways to place an order
A market order says “complete this at whatever the current price is.” It takes the best available bid or ask immediately. A limit order says “complete this only at my price or better,” and it waits until the market comes to it. Market orders prize speed and certainty of completion; limit orders prize control over price. Neither is universally better — they solve different problems. A useful default for beginners: when the spread is a penny and the stock trades millions of shares a day, the two order types behave almost identically. When the spread is wide, the choice matters a great deal.
Who is on the other side
There is always someone on the other side of your trade. It might be another individual, a pension fund, or a professional firm whose entire business is quoting bids and asks all day. You never need to know who it is. The exchange matches orders automatically, pairing each order with the best available counterparty in fractions of a second. This is worth internalizing: every price you see already reflects someone willing to transact there. You are never “taking” a price from an empty market — you are accepting terms that a real participant offered.
The price you see is not always the price you get
Quotes move constantly. By the time your order arrives, the best bid or ask may have shifted — especially in fast-moving markets or in stocks where few shares change hands. With a market order you accept that uncertainty; with a limit order you cap it, at the cost that your order might never complete.
Why spreads differ
The spread is not fixed. In heavily traded stocks, competition among those quoting prices squeezes the spread to a penny or less — there is always someone willing to shade their price to win the trade. In thinly traded stocks the spread can be wide, because quoting a tight price there means taking on real risk with little reward. As a rule of thumb: the more shares changing hands each day, the tighter the spread, and the closer the price you see is to the price you get.
After the trade
Once matched, the trade settles: shares and cash officially change hands, usually one business day later. Your brokerage handles all of this invisibly. The shares simply appear in your account, and the cash leaves it. Nothing further is required of you.
What a trade costs you
Every round trip has a price beyond the shares themselves. First, the spread: crossing it means paying slightly more than the midpoint on the way in and receiving slightly less on the way out. Second, your brokerage may charge a commission or take payment for routing your order — either way, someone is compensated for handling it. Third, profits are taxed, and short holding periods are generally taxed at higher rates than long ones. None of these costs is large on its own. But they apply to every single trade, win or lose, which is why frequent trading needs a genuine edge just to break even: the costs compound silently while you focus on the wins.
Worked example: Reading a quote
Illustrative figures only, to show how bid, ask and orders interact.
| Price | Shares available | |
|---|---|---|
| Bid (willing to pay) | $49.95 | 200 |
| Ask (willing to accept) | $50.05 | 300 |
Spread: $0.10. A market order for 100 shares completes at $50.05 (total $5,005). A limit order at $50.00 waits until the ask drops to $50.00 — which may never happen.