The process of making investment decisions requires a lot of attention, as it is important to be informed about every detail concerning the underlying asset. To make an investment decision, investors need to be well-versed in the various terminologies existing in the stock market. One of the notions accompanying every investment process is the “quoted price”.
The quoted price is simply a representation of the value of an asset the very last second it was traded. The value reflected on the quoted price is one of the key determinants that helps people decide whether it is the right time to acquire the asset or not.
In the guide below, we will explore the quoted price, how it works, and what components it is made of, as well as how to make a decision based on the information quoted prices give.
Quoted Price Defined
Quoted price, also referred to as “quoted cost”, can simply be defined as the price of an asset at the time it was last traded.
Assets are often traded following a process of negotiation between the buyer and the seller. The buyer and the seller come together with their various prices so that they can agree upon a particular price that works for both of them before the transaction is finally executed.
When the transaction is concluded, the price at which the parties agree to trade the asset becomes the quoted price of the asset. In essence, the “quoted price” is a kind of meeting point where buyers and sellers agree.
Notably, this is not always the case in every investment process as other types of investments allow you to buy at the quote price directly.
Understanding Quoted Prices
Identifying the quoted price of an asset is the first step toward understanding what it is all about. It constantly updates you with the latest information about stocks. While a stock ticket indicates the name of the company (like NFLX for Netflix Inc.), a quoted price provides information on how many shares of a stock or asset were bought or sold, the price those shares were traded at (in numbers with decimals), whether the price went up or down from the last update, and by how much it changed. This helps people keep track of what’s happening with stocks in real time.
As mentioned earlier, the primary determinant of the quoted price of an asset is the interaction between the concerned buyer and seller. An asset is usually available for sale at the highest price a buyer is willing to pay for it. As such, the latest price at which an asset was traded makes up its quoted price.
This means that the quoted price of the asset this minute may not be the same in the next five minutes. It gets updated at intervals as the quoted price can change anytime the asset is bought and sold.
The more trading activity performed in a day, the more the price is likely to move throughout the day. As such, there are chances that the quoted price may not change at all or change slightly if the trading volume is low.
Bid and Ask Prices
The process of executing a trade usually involves two parties, which are the buyer and the seller. Before an agreement is reached to get the quoted price, the buyer and the seller come to the table with the intended prices.
Simply put, there are two prices in trading: the price of the buyer (bid price) which is lower, and the price of the seller (ask price) which is higher. These prices show how much you can buy or sell something for.
Nonetheless, it is important to note that a quoted price is generated from the bid and ask price. Hence let’s briefly examine what the bid price and ask price entail.
To initiate a trade, there has to be a trader or dealer who is willing to acquire a particular asset at a specific amount. The amount proposed by the person to purchase the asset is what is known as the bid price. Thus, in a stock market where there are multiple investors willing to bid over an asset, the highest price at which one of the prospective buyers is willing to pay to acquire the security or asset is termed the bid price of the asset. Oftentimes, the quoted price displayed for an asset is a representation of the highest bid price available for it.
Contrary to the terms of the bid price, the ask price is the amount of money the seller is willing to accept over the sales of an asset. The ask price is always higher than the bid price because the goal of every seller is to make more profits.
Quoted Price and Traders
The quoted price is more of an ally to traders as they basically rely on quoted prices for the most recent information on the market.
As a crucial tool for making informed investment decisions, traders use these prices to plan their strategies and decide whether prices will go up or down. It’s like reading the score to make your next move in a game.
Nonetheless, it is important to note that the quoted price of a financial asset is a bit limited in what it tells you. The quoted price of an asset does not reveal the following;
- It doesn’t show the balance of supply and demand – there might be more people wanting to buy than sell, which can affect the price.
- It doesn’t tell you who is doing the buying or selling – you don’t know if big institutions or insiders are involved which can suggest a price pump in the short run. Investors will not be able to strategize on this situation since they are not aware.
- It doesn’t reveal if there are orders to buy or sell at specific prices nearby. For example, if a stock is at $32 and lots of people want to buy it at $35, it might shoot up quickly to $38 or $40 when those orders are triggered. So, investors might want to act before that happens to get a better deal.
The sole purpose of every investment is to make a profit. Hence, the importance of quoted prices in making strategized and informed investment decisions cannot be overemphasized.
In many online trading platforms, the quoted prices are often displayed in a rectangle in an area that can be easily sighted on the websites or applications. This makes it easy for investors to easily navigate their way in their attempt to access accurate market data.
As such, it is correct to say that quoted stocks have a role to play in helping traders to maximize profits.