So, know that we discussed, basically whether the market works, again we will discuss the different venues at the market works on. Let us break this down now to a stock level. Let us break it down now to stocks themselves.
So, what we need to know about the innerworkings of a stock, okay is what every stock is going to consist to them. By the way it is not only a stock it is in the equity and any equity is going to have what is called a bid and what is called the offer, bids and offers, this is the fundamental. This is the blood and souls of our human body. This is the innerworkings of the stock. So, let us just quickly define what a bid is and what an offer is, that we already understand.
A bid is the price that somebody is prepared to buy a stock or what ever it maybe, anything at, that is a bid. So, it can bring us to real life, you should be like if I was going to buy a car. I am prepared to by a car in this written rate. I am prepared to buy it a high at a set amount and I would love to buy a lot, but I am prepared to buy it as in this range, right? So, so if I am free to buy this car at $10,000.00, my bid is $10,000.00 for this car alright? So, for the round, so the person that has the car ready, whether be a deed or a private individual, okay. If he decides that he wants to sell the car, he is saying that he will say sell the car at $12,000.00 so his offer is $12,000.00, all right? So, he is saying, “W will offer the car to you at $12,000.00.” You are saying, “I bid the car at $12,000.00, at ten, right? So, bid is what am I prepared to buy this set? And, an offer is what am I prepared to sell this set? That is bid and that is an offer, all right?
Now, the way that stocks work, okay? Is there is a tension between the bid and the offer. I am going to explain to you what is called the inside market and the depth of the market. When we talk about a bid and an offer in a stock, we have to have them their order in their specific way, so that this some type of order and logic towards the way at the market and they way the stock is set up. So, the way that the bid is set up is as the business set up in a preference by the highest price at the top and as people pay this and this and this …, they go at the back. So basically, you are at the front of the cue, if you are prepared to pay the most for whatever stock this is. So, if you… and that is called the highest bid, that is called the high bid, all right? So, if I am here to pay, let us take the dollars away or let us say $28 or something and you have to pay $27 or something. I am the highest bid and she is the second bid. I will be dealt with first; she will be dealt with second. It is very logical; it is exactly that we will work. Then, if I am offering something, it is the lowest offer. As the top is the front of the cue and then as offers go higher and higher they move to the back of the cue, and the reason for that is, is that you are trying to find the closest match between the bids and the offers and that is called the inside market. It is the highest bid by the lowest offer.
And, the way this is shown is the number with an x in between, multiplication, and in another number that is the bid by the offer. So, if you ever look at level one and level one means just basically, the inside market and that is it, on E trade or whatever it is, it is the bid by the offer. It is the highest bid by the lowest offer, because what they are trying to do is they are trying to bring things so close into such close quarters that a current action will take place.
So, as you start moving out, that is called the depth of book by the depth of the market. As you start moving down through office higher and higher or down through the bid lower and lower, you start moving away form the inside market and things start becomes less and less treatments and the action is less and less, as you go further through. The inside market is where the war takes place. The inside market is where everything happens. That is where everything takes place. That is where everything happens because that is the first line that has to be crossed before you can get to the next. So, the highest bid by the lowest offer is called the inside market and the difference between the two prices is called the spread, okay. So, the difference between the highest bid and the lowest offer is called the inside market and it is made by the spread.
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