Hi Greg,
Your comment below in response to atskaggs' question might be confusing for some, so I thought I'd clarify it if you don't mind:
atskaggs wrote:
<<Forgive me if this is a stupid question (statement?), but I noticed that the bid is 78 while the ask is 88 in after-hours. Is this normal?>>
#reply-16576
Greg S. wrote:
<<basically that means no one wants to pay more than 78 for it, but nobody wants to sell it for less than 88.>>
#reply-16578
In this example, the bid of 78 is the price at which a dealer/broker is willing to pay to buy the stock from an investor/trader which is the same thing as the price for which the investor/trader is willing to sell his shares to a dealer/broker.
The ask (or offer) of 88 is the price at which the dealer/broker is willing to sell his shares to an investor/trader and therefore, is the same thing as the price for which the investor/trader is willing to pay to buy the shares.
You were defining the bid/ask from the perspective of the dealer/broker, but most people on the thread reading those definitions would likely think that the bid/ask definitions are exactly opposite of what you stated due to their reference as being the investor/trader. :)
Also, in response to atskaggs' question regarding the large spread (the difference between the bid and ask):
#reply-16581
The spread is due primarily to the the liquidity of the stock. Though I am assuming that the stated bid/ask prices in atskaggs' post were not a misprint, (I don't follow after-hours trading), the answer applies regardless of the size of the spread (or accuracy in reporting it ;).
If there are lots of shares available for the dealer/broker to buy and sell, they will make their profits due to the sheer volume of trades executed, and the spread will probably be smaller due to the liquidity being 'high' in that equity at any given moment. OTOH, if there are not many shares available to be bought and sold, the dealer/broker will likely increase the spread in order to make adequate profits. It's therefore supply and demand in combination with liquidity that determines the spread more or less.
BTW, this buying and selling of a stock by the broker/dealer is referred to as 'making a market' in the stock. The market makers' profit (which is a substantial portion of the spread) can be viewed as their commission for maintaining the liquidity of the stock on the open market.
Hope this was helpful. :)
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