The Definition of Stock Quote
- The simplest stock quotes to understand are delayed stock quotes. These quotes are typically available on websites such as Yahoo Finance (see Resources) and show the price at which the stock traded about 20 minutes ago. However, these prices don't tell you at what price someone is willing to buy or sell the stock right now.
- Real-time quotes are problematic because the act of buying or selling a stock can move the price. This is especially true in an "order-driven market" like the New York Stock Exchange where the orders themselves set the price. Electronic exchanges like the NASDAQ are "quote-driven markets" where market makers compete to post the best bid and ask prices for stocks. You are more likely in this type of market to know exactly what price you will get before placing the order.
Yahoo Finance also offers real-time quotes provided by BATS, an electronic trading platform. - Professional stock traders rely on "Level 2" quotes to study the buy and sell pattern of a stock in real time in order to better predict what their own order might do to the price. Level 2 quotes show what type of institution was involved in the transaction, the volume of the trade and what prices were offered.
- A real-time quote usually contains both a bid price, the price at which a market maker is willing to purchase the stock, and an ask price, the price at which the market maker will sell the stock. A large difference between these two prices suggests an illiquid stock, one where there are not enough buyers and sellers. Illiquidity makes it more difficult to predict the exact price at which transactions will occur.
- Stock traders manage the risk of price volatility by placing limit orders when they buy or sell stocks. These orders mandate a certain price at which to buy or sell a stock. If no buyer or seller emerges at that price, the transaction is canceled.
