Take the 2-minute tour ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

When buying a stock (say Google or Apple) at day 1 you pay the ask price of that day. When selling the stock at day 6, you get the bid price of that day.

The return you made is given by [ BIDPRICE_day6 - ASKPRICE_day1 ] / BIDPRICE_day6

First, is this correct? Second, I am now wondering whether these principals also exist when going long or short in an equity index, such as the S&P 500?

If so, where can I find historical bid and ask prices of this index?

share|improve this question
1  
The denominator in your equation should be ASKPRICE_day1, since you want to know how much you gained (the numerator) versus how much you risked (the denominator). physics.uoguelph.ca/tutorials/exp/percent.html –  jstim Jan 22 '13 at 23:05
add comment

3 Answers

The equation you show is correct, you've simply pointed out that you understand that you buy at the 'ask' price, and later sell at the 'bid.'

There is no bid/ask on the S&P, as you can't trade it directly. You have a few alternatives, however - you can trade SPY, the (most well known) S&P ETF whose price reflects 1/10 the value or VOO (Vanguard's offering) as well as others. Each of these ETFs gives you a bid/ask during market hours. They trade like a stock, have shares that are reasonably priced, and are optionable.

To trade the index itself, you need to trade the futures. S&P 500 Futures and Options is the CME Group's brief info guide on standard and mini contracts. Welcome to SE.

share|improve this answer
add comment

You can trade an index by using a Contract For Difference, or CFD.

Various brokers offer this method and the spreads are quite low.

They tend to widen outside of market hours, and not all brokers offer the same spreads.

I would look for a broker that offers the lowest spread on the index you are interested in.

You should also do your due diligence and check they are regulated by the relevant authority pertaining to their territory, eg FSA for uk

share|improve this answer
1  
Added a link to a description of CFD. Note, this trade is not permitted in the US, but is available in a number of other countries. Since OP hasn't offered his location of assigned a country tag in his question, it may be of help to him. Welcome to SE. –  JoeTaxpayer Jan 18 '13 at 17:36
add comment

Bid and ask prices of stocks change not just daily, but continuously. They are, as the names suggest, what price people are asking for to be willing to sell their stock, and how much people are bidding to be willing to buy it at that moment.

Your equation is accurate in theory, but doesn't actually apply. The bid and ask prices are indicators of the value of the stock, but the only think you care about as a trader are what you actually pay and sell it for. So regardless of the bid/ask the equation is:

 SellPriceDay6 - BuyPriceDay1
------------------------------ = % Return
         BuyPriceDay1

Since you cannot buy an index directly (index, like indicator) it doesn't make sense to discuss how much people are bidding or asking for it. Like JoeTaxpayer said, you can buy (and therefore bid/ask) for ETFs and funds that attempt to track the value of the S&P 500.

share|improve this answer
add comment

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.