I believe I understand most of the basics of the Bid/Ask, but I've been watching L2 screens for certain stocks over the last few days and a few questions have come to mind.
If I wish to buy a stock immediately (Market Order), I pay the Ask price assuming all of it can be filled at that price. If I wish to sell a stock immediately (Market Order), I pay the Bid price.
Where does the actual price of the stock fit into that, though? I often see cases where the price of a stock is exactly the same as the bid price (for instance), yet from looking at the L2 screen, I can't understand why. There doesn't appear to be more buying pressure than selling pressure in that case. What pushes the actual price of the stock more toward the Bid than the Ask or vice versa? And is the actual stock price really good for anything besides a progress marker for the price of a stock, since Buys/Sells rarely take place at it?
In addition, there have been times when i've watched the L2 screen for certain low volume stocks during the day and there doesn't appear to be any Bid/Ask offers. What happens if I placed a market order under this circumstance? Does it open the door wide for someone to come along and place an opposite Limit order giving me a gouging price for it? Are there any limits or protections for just how gouged I can be? I've read something about Bid/Ask prices needing to be within the High/Low of the stock for the day to be legitimate, yet that doesn't seem to make much sense either, since the Bid/Ask is almost always Below/Above the stock price.
Can anyone help me understand this?
If I wish to buy a stock immediately (Market Order), I pay the Ask price assuming all of it can be filled at that price. If I wish to sell a stock immediately (Market Order), I pay the Bid price.
Where does the actual price of the stock fit into that, though? I often see cases where the price of a stock is exactly the same as the bid price (for instance), yet from looking at the L2 screen, I can't understand why. There doesn't appear to be more buying pressure than selling pressure in that case. What pushes the actual price of the stock more toward the Bid than the Ask or vice versa? And is the actual stock price really good for anything besides a progress marker for the price of a stock, since Buys/Sells rarely take place at it?
In addition, there have been times when i've watched the L2 screen for certain low volume stocks during the day and there doesn't appear to be any Bid/Ask offers. What happens if I placed a market order under this circumstance? Does it open the door wide for someone to come along and place an opposite Limit order giving me a gouging price for it? Are there any limits or protections for just how gouged I can be? I've read something about Bid/Ask prices needing to be within the High/Low of the stock for the day to be legitimate, yet that doesn't seem to make much sense either, since the Bid/Ask is almost always Below/Above the stock price.
Can anyone help me understand this?
