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I would like to find out if there is a reason the bid price should be lower than the last price?

If buy a stock, I am going long anticipating a price increase on this stock. So if the last price is 50 and the bid/ask is say 46x57 why should I bid 47, 48, or 49 instead of 50 and above? Bidding at a price lower than the last would result in a depreciation of the stock which does not serve my interest since I have gone long on the security whereas bidding at the last price evens out, resulting in no movement and bidding higher, results in appreciation which I desire.

So why can't I bid at 50 or higher, but definitely less than the ask of 57? Also if the last is 50 why would someone ask for 57 or even higher? Lastly, are the bid and ask numbers arbitrary? How do bidders and sellers come to their price given the last price?

  • "anticipating a price increase on this stock" such anticipation is generally (relatively) long-term... if a short-term fluctuation means the price (briefly) drops to 47, and you've bid 47, then you've made an extra 3 zlotys or whatever profit when it does increase later. Of course, it could also continue south to 35 and you lose out (although, again, by 3 units less than if you'd bought at 50). – TripeHound Nov 29 '19 at 8:01
  • Price is 50 and ask is 57, that is a very big spread. Where did you see this behaviour ? Or is that a hypothetical scenario ? – DumbCoder Nov 29 '19 at 8:50
  • Ok, does this then mean one must always bid less than the last price? and absorb the temporary depreciation (save it it doesn't go south) as per your explanation, in anticipation of an appreciation since I have gone long? So main advantage then is the loss is minimised when you bid less than the last price? This is also why I asked the other question are the bid & offer prices arbitrary? HOW DO BIDDERS AND SELLER ARRIVE TO THEIR PRICES? IS THE LAST PRICE MATERIAL IN DETERMINING bids & offers?? – Sjakes Nov 29 '19 at 8:55
  • This is a hypothetical scenario of a stock that is not commonly traded... – Sjakes Nov 29 '19 at 9:01
  • Imagine a company which has a last traded price of 1000 a minute ago. In the last few seconds the CEO has been arrested for fraud. Should the 1000 be used as a guide to what the price should be now? – Philip Nov 29 '19 at 10:13
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So if the last price is 50, and the bid and ask is say 46 / 57 why should I bid 47/48/49 instead of 50 and above??

The market is an auction. The bid is the highest amount that someone is willing to pay for the stock and the ask is the lowest that someone is willing to sell the stock for. If the quote is 46x57 and you are the highest bid at 46, why would you bid against yourself and offer 47 or 48 or even 50 when at 46 you will be the first one to buy the stock if a seller decides to trade at the market? If another person raises his bid above 46, becoming best bid then all you have to do to become first in line again is to raise you bid above his.

Reason being bidding at a price lower than the last would result in a depreciation of the stock (which does not serve my interest since I have gone long on the security) whereas bidding at the last price evens out resulting in no movement and bidding higher, in an appreciation which is what I desire??

Here's a silly hypothetical for you. If you could buy this stock for 75, would that mean that overpaying served your interests, making the stock more valuable? If everyone else is only willing to pay up to 46, all you accomplished was throwing away money.

I would like to find out. Is there a reason the bid price should be lower than the last price?

  • Suppose yesterday the price was 50x61 and one trade occurred at 50 (the last price). Now the market drops 3 points and the bid is now 46x57. The bid is lower than the last price of 50.

  • Suppose the quote yesterday was 50x57 and one trade went off at 50, taking out the one bidder above 46. Now the quote becomes 46x57 with a last trade of 50 (bid lower than last price).

Do you see the pattern here? The market reflects the current auction and the last trade has nothing to do with it.

FWIW, it's generally a good idea to avoid stocks with such wide spreads. In this case, trading at the market means that you have an 18% paper loss from just taking a position.

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  • I would like to thank everyone who took their time to answer my questions. Your answers haven given me an invaluable insight. My parting shot is, Bob and everyone: "FWIW, it's generally a good idea to avoid stocks with such wide spreads. In this case, trading at the market means that you have an 18% paper loss from just taking a position." So what is the wisdom of buying penny stocks or cheap stocks? Since they are the ones generally that tend exhibit these trading atrbutes? – Sjakes Nov 29 '19 at 21:40
  • @Sjakes - The wisdom of buying stocks is to sell them for more than you paid for them. If you are clever enough to pick stocks that easily overcome a large initial loss such as the 18% wide bid/ask spread as in your example, then go for it. Props to you if you can succeed that way. – Bob Baerker Nov 29 '19 at 23:14

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