What is Quotation?
Quotations refer to the most recent sale price of a stock, bond, or any other asset traded. They also include the bid and ask prices that determine the final sale price. The bid is the highest price a buyer is willing to pay, while the ask is the lowest price a seller is willing to accept.
In stable, liquid markets, the bid-ask spread is typically narrow. However, during times of market volatility or systemic concerns, such as geopolitical events, the bid-ask spread often widens, reflecting the uncertainty and reducing market liquidity.
Key Takeaways
- Quotations represent the latest sale price of an asset.
- Quotations also include high, low, open, and close values for a specific day.
- The bid is the maximum price a buyer is ready to pay, and the ask is the minimum price a seller will accept.
- Market volatility affects quotations by widening bid-ask spreads.
- Quotations offer crucial insights into market trends and movements.
How Quotation Works
Quotations provide two critical pieces of information for asset classes: the price to purchase (lowest ask) and the price to sell (highest bid) an asset at a given moment. The disparity, known as the bid-ask spread, signifies the liquidity cost incurred during the trade.
As an asset’s price decreases, the bid-ask spread usually widens, indicating lower liquidity, particularly in volatile markets. Quotations also encompass the high, low, open, and close prices for the day. These metrics provide comprehensive context around daily market activities, and significant changes between open and close often highlight strong market trends.
Types of Quotations
Besides stocks, many other asset classes report quotes, emphasizing their versatility and importance across financial markets.
Fixed Markets
Fixed income markets quote bid and ask prices for bonds. Bond quotes include the asset’s par value and yield to maturity. For instance, a bond quoted at 97% of its $1,000 par value implies it trades at $970.
Par Value
The bond’s par value, often $100 or $1,000, remains constant regardless of market value changes and influences both its maturity value and coupon rate.
Futures and Commodities
Both futures contracts and commodities use quotations. A futures contract’s quotation is an agreement to buy or sell at a set price on a future date, like buying an oil futures contract at $80 per barrel a year from now.
Inspirational Example of a Quotation
Apple Inc. (AAPL): Apple’s liquidity makes it a prime example. If AAPL closes at $165, and the day’s range is $161 to $167, this tight range reflects high trading activity. If the bid-ask spread at 10:30 am sees bids at $162.99 and asks at $163.01, transactions occur with a manageable spread, indicating robust market activity.
Frequently Asked Questions
How Do You Read a Stock Quote?
A stock quote consists of the sale price, bid, and ask prices. Interested in trade? Note the bid (buyer’s price) and ask (seller’s price).
What Are Real-Time Quotes for Stocks?
Real-time quotes update continuously and are crucial for day traders engaging in high-frequency trading.
What Is a Nominal Quotation?
A nominal quotation is a hypothetical price used for planning future trades, prefixed by FYI or FVO, contrasting with the actual market quotation.
What Is an Interdealer Quotation System?
An IQS organizes price quotes from brokers and dealers, like Nasdaq systems providing critical quote information.
The Bottom Line
Understanding and utilizing quotations effectively is fundamental for both casual observers and active traders. Quotations are readily available, offering valuable insights into market dynamics. For traders, deeper analysis including bid/ask spreads and trade execution timing is imperative for informed decision-making.
Related Terms: stock quote, liquidity, fixed income, futures contract, commodities, bid-ask spread.
