Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Best Ask

What it is:

The best ask is the lowest price offered by a stock's market makers. For stocks, the best ask is quoted in dollars. For bonds, the best ask is quoted as a percentage of face value or (for Treasuries and other discount bonds) as a percentage discount from face value.

How it works (Example):

Let's assume the shares of Company XYZ trade on the Nasdaq Composite Index and there are four market makers for the stock. At the day and time you are considering placing your order to purchase Company XYZ stock, the market makers are asking the following prices for the stock:

Market Maker A    $45.25
Market Maker B    $45.50
Market Maker C    $45.00
Market Maker D    $45.25

In this example, market maker C, who is offering to sell the stock at $45 per share, has the best ask.

Now let's look at the ask prices for the four market makers of Company XYZ bonds:

Market Maker A    99.75
Market Maker B    99.50
Market Maker C    99.50
Market Maker D    99.25

In this example, market maker D has the best ask because it is willing to sell for 99.25% of its face value.

Note in both examples that we have ignored ask size; the investor should consider the number of securities offered by the market makers when evaluating prices. Also note that the current price of a security is the price at which it last changed hands; the best ask is the price at which a market maker is currently willing to sell. The SEC requires brokers to guarantee their customers the best available ask price.

Why it Matters:

The market maker presenting the best ask usually receives the next order. This is important to day traders and other investors who trade very quickly -- delaying a trade by just a few minutes can expose the investor to the risk of completing the trade at a less favorable price.

The best ask is a component of the inside spread, which is the difference between the best ask and the best bid. Some traders and analysts purchase access to services showing all bids and ask prices on a particular security. Not only can this provide clues about a security's price trends, it may also indicate which of the market makers has the most influence on a security's ask price (these market makers are called axes).

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