What Is Ask Size?
The ask size is the number of shares that a seller is willing to sell at a given price. For instance, a seller is willing to part with 3,000 of their shares at a specific asking price.
People who offer to buy and sell securities are the market makers. They need to come up with a price they want to ask for a certain security (ask price), and the amount they are willing to sell (ask size).
The market maker also needs to indicate how much it’s willing to purchase the security for (bid price) and the amount it’s willing to buy (bid size). When a trader places an order through the exchange, it’s filled by the market maker.
In general, the greater the ask size, the more supply the seller wants to part with. A buyer who wants to purchase the security can accept the seller’s ask price and purchase up to the ask size amount.
Why Does Ask Size Matter?
The ask size is an indication of what market conditions are like. This is a factor that sellers can use to determine whether a certain trade is profitable.
For instance, if there are more buy orders for a security than supplies of stock offered for sale, traders may need to liquidate their inventories to clear out these excess orders. This tends to happen when news like mergers or surprise earnings are publicized.
In contrast, if both bid and ask sizes are mismatched, trading can be suspended by the exchange due to that imbalance. Because of this, analysts and traders look for patterns in bid-ask sizes and spreads to figure out what may happen to certain securities.
Ask Size vs. Bid Size
The bid size is the amount of stock or securities a buyer is willing to buy at the bid price, whereas the ask size is the amount a seller is willing to sell at the ask price. In other words, they’re the opposite of each other.
Think of it as a representation of a supply and demand relationship for a specific security.
Why Is Ask Price Higher Than Bid Price?
The ask price is larger than the bid price because a seller would never want to sell securities for a lower price than the buyer is willing to pay. Otherwise, they’d be missing out on potential gains, that is not able to maximize gains or minimize losses.
Ask Size in the Share Market
It's the role of stock exchanges and the entire broker-specialist system to facilitate the coordination of the bid and ask prices – a service that comes with its own expense which further affects the stock’s price.
Ask price and bid size numbers are usually shown in brackets in a price quote. They represent the number of shares (in lots of 10 or 100) that are pending trade. at the given bid and ask price.
Ask Size vs. Volume
Volume refers to the total number of shares or contracts that are traded within a certain time period, for example, one trading session or one market day. The total volume is comprised of both the buying or selling volume. When a trade occurs at the ask price, the ask size becomes part of the overall ask volume.
Should I Buy at Bid or Ask Price?
Traders obviously want to get a better price for their trades, so instead of accepting the current bid or ask price, many try to purchase a little lower or sell higher. If someone can hold onto their shares to get a better price, then selling higher than the current ask price is a good idea. However, if you want to purchase a certain security, you can see what is being reported on the bid (an indicator that prices are likely to change).
What Is a Normal Bid-Ask Spread?
The bid-ask spread is the difference between the bid price, the price that buyers are willing to buy at, and the ask price, the price that sellers are willing to sell for. What’s considered normal for one type of security will be different for another. For instance, it’s normal for highly liquid stocks to have lower bid-ask spreads.
Compare this to illiquid securities which tend to have wider bid-ask spreads. These can include small caps which tend to have spreads over 1% of an asset’s price.
Is a Large Bid/Ask Spread Considered Good?
That depends on the type of asset being traded. Market makers want to offset the risk of holding onto inventories of low-volume securities so they often use wider bid/ask spreads. This means higher premiums for market makers – and not necessarily the ones who want to purchase these types of securities.