A stock quote is essentially the price of a stock or equity security that is quoted on an exchange. The stock quote provides key pieces of information to be used by traders and brokers. It includes information regarding the bid price and ask price, the last traded price, and the volume traded in the day.
Understanding Stock Quotes
A stock represents a piece of ownership in a certain company and offers investors a way to own a business and participate in its future opportunities. With the advent of stock exchanges, anybody can participate in the stock market and can easily buy and sell stocks with other people.
However, in order to make buying and selling decisions, people require relevant pricing information. Since the stock market is so large, significant developments and price movements can occur very quickly.
A stock quote provides important information for traders, brokers, and investors. Information that is provided includes:
Security name (company name)
Daily change in price
Daily volume of the stock
Bid price (the price that a market maker will buy a security from a seller)
Ask price (the price that a market maker will sell a security to a purchaser)
Previous closing price
Daily high-low price range
52-week high-low price range
Historically, all of the information was difficult to access and could only be seen in newspapers and magazines. However, with electronic trading become more prominent in recent years, investors can readily access stock quotes easily either online through websites or on mobile devices and apps.
Many internet websites and portals provide delayed stock quotes for free; however, usually, real-time stock quotes can be provided for a fee to paying subscribers.
History of Stock Quotes
In the United States, prior to 2001, stock quotes were quoted in fractions. However, after 2001, a transition was made to quoting stock prices with decimal points.
The change led to a substantial contraction in bid-ask spreads. Spreads for highly-traded stocks can comprise bid-ask spreads as small as $0.01, whereas previously, the smallest bid-ask spread would’ve been 1/16th of a dollar, or $0.0625. It results in a saving of transaction costs for investors since the bid-ask spreads are tighter – there is more liquidity in the stock market.
Here is Apple Inc.’s stock quote on September 2, 2020:
Stock quotes provide very important information, as mentioned above. All of this supplemental information and data helps investors to make more informed trading decisions. A lot of attention is paid to the daily performance of stocks.
Investors keep a close eye on whether stocks are increasing or decreasing, and they usually focus on relative changes that are captured by percentages. It is important for investors so they can see the changes in value to make selling decisions – or for potential holdings, to see the changes in value to inform purchasing decisions.
Current prices reflect the supply and demand of all investors in the market. Therefore, a lot of information is conveyed from the stock quotes. The main inference made from stock quotes is the future expectations of a company.
When prices are increasing, it generally reflects increased demand for the stock – i.e., more people buying. It shows that the future expectations for a company are promising. Conversely, if prices are decreasing, it reflects decreased demand for the stock – i.e., more people selling. It shows that the future expectations for the company are worsening.
Such a fact is very evident in quarterly earnings updates, which all public companies must adhere to. In the updates, companies post their quarterly financial results, as well as management commentary, and host a conference call to answer questions from sell-side analysts.
Sell-side analysts are full-time research teams from each bank that provide coverage on stocks. They are characterized by possessing a strong understanding of industry and company fundamentals, and draft estimates for future stock prices, earnings, and results. Therefore, any variations from the consensus estimates are known as a “surprise” and can drive significant price movements in the short term.
CFI is the official provider of the global Capital Markets & Securities Analyst (CMSA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:
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