Stock Market Quote

When you request a stock market quote, the stock price is changing all time but why? They are determined by supply and demand and many factors have influence on the current supply and demand situation.

On the stock market the price is set by market makers or specialists. These are the professionals on the stock exchange who match buys and sells together to an execution. These traders receive your order that you place through the phone or your online stock trading platform on your computer. They are not doing that for free so they take the so called spread between the bid and the ask price. The market maker must provide a current bid and ask at all times. These are the quotes where he is willing to buy or sell a particular stock even when he himself has nobody else to trade with. For this reason the market maker publishes an higher price ask price and a lower bid price. You can buy from him at the higher quote but only sell at the lower quote.

This is how it works on the New York Stock Exchange or also known as the NYSE or Wall Street. The market maker there is called specialist and he matches all incoming trades in the so called open outcry auction. On the NASDAQ it works a bit different because there are many different market makers competing with each other posting different bids and asks all time. In addition electronic communication networks or so called ECNs are posting bids and asks asks well, coming from private investors or institutional traders. If bid and ask are matching then the orders are executed automatically and electronically.

Understanding the stock market means understanding how stock quotes and spreads work. Since the spread is the only income for the market maker and providing the market for a stock is risky, he adjusts the spread when needed. That's why the spread is changing all time, it can widen to several dollars in extreme situations and narrow to a few cents. The spread is dictated by share available volume and market action. To faster the stock moves the wider the spread will become because this means more risk for the market maker. The more volume he has on both sides the easier for him to earn money and the lower the risk. The spread will narrow. Just set yourself into the position of the market maker and you will quickly understand why the spread, bid and ask is changing all time.

This is also why the stock market quote can go up and down even if there is no change in the company earnings or fundamental data. If the whole stock market is going up, then it's likely that your stock will also go up, although nothing has changed for the company behind the stock. A stock price is reflecting much more than just the company's value. When you imagine that the stock quote is always reflecting the company's future value, then you will understand why it always changes. Since nobody knows the future everybody will have a different opinion about the company's stock price value.