Bid size and ask size indicate how many shares investors are looking to buy or sell at a specified price. Differences between the bid and ask sizes can provide valuable clues as to the short-term direction of a stock.
A basic quote consists of bid and ask prices. Bid is the highest price at which you can sell; ask is the lowest price at which you can buy. For example, if XYZ is quoted at $27.13 bid, $27.28 ask, the highest price at which you can sell is $27.13, and the lowest price at which you can buy is $27.28.
Size indicates how many shares investors are willing to buy or sell at a specified price. A current quote for XYZ that looks like this: $27.13 bid, 800, $27.28 ask, 50, means that someone is looking to buy 80,000 shares at $27.13 and someone else is offering 5,000 shares at $27.28 -- the last two zeros in the size are omitted.
Analyzing Bid and Ask
Current quote is the sum total of all orders that make up the highest bid and the lowest ask. In an orderly and balanced market, the bid and ask sizes are usually roughly equal. An imbalance indicates that the presence of more buyers than sellers, as in the XYZ example, or vice versa.
Interpreting the Difference
The presence of more buyers than sellers would suggest that the current stock price trend is up, as buying is stronger than selling. However, as paradoxical as it may sound, the price often moves in the direction of the largest size. Since bid is always lower than ask, it means that the XYZ price trend is down in the example. This happens because large-size buying or selling can take place only when there are shares available, so when someone is willing to buy 80,000 shares of XYZ at $27.13, sellers may come forward and sell at that price; otherwise, they may sit patiently and wait for the price to come to them. Large-size bids bring out sellers whose selling can push the price lower; large-size asks bring out buyers whose buying can push the price higher.
Bid and ask sizes can change quickly as buyers and sellers come to the market throughout the day, so the price change indicators they generate are very short-term.
- The Boston Institute of Finance Stockbroker Course: Series 7 and 63