I was watching the trends of a certain stock and the price started to fall, so I purchased. The part I do not understand is the stock price showed $17.30, but when I confirmed the purchase, the price was actually $17.43. What would cause this? Does the bid/ask price have anything to do with it? When I looked at the price chart I never saw an influx in the price from $17.30. Any insight would be appreciated.
It sounds like you put in a "Market" order instead of a "Limit" order. Are you familiar with the difference?
No, I am not to be honest. This is only my second day purchasing. I am using robinhood and went through their process of buying. Is there any advantages/disadvantages to either?
Use limit orders, because you need to get the price that you want. Another thing to be aware of in the future, if you trade stocks that have low volume (let's say 600,000 shares if you need a number) then the spread between bid/ask can be large (25 cents or more). You can use market orders on stock with high volume (eg SPY) if you just want to buy and not waiting.
Thanks. The higher spread makes sense, but is the bid/ask what caused my issue? Does the market price equate to the ask price? I looked on robinhood's site about changing from market/limit. This is what they had for definitions: Market order - Market orders execute at the following market price. Market orders are adjusted to limit orders collared at 5%. Limit orders higher than the current offering will be executed at the next best available price. Keep in mind that the price you see when you enter the order may differ from the following price. Limit order - Limit orders specify the maximum amount you are willing to pay for a stock. Ex. ABC stock is trading at $10. A limit order can be placed at $9 which will execute when ABC stock is offered at $9 or lower. Why would I need to purchase a stock as a limit order if the price was showing $17.30 and that is what I wanted to buy it at? Is that not the actual price of the stock? Is the market price the true value? Let's say for clarification sake, if I purchased the stock at the limit purchase for $17.30 and the market price was $17.43. What if the market price never got down to $17.30 again (example sake). Would the purchase never execute?
Correct, it would not execute. Market order says to the broker, just grab the next x number of shares available for sale at the price being asked. So yes, it is pretty much the ask price. Problem is, the ask can raise even more while filling out and submitting the order.. But if you really want the stock and expect it to go even higher and want in, then that would be the type of order to use. Limit orders have you setting the price you are OK with getting in at. If it is below the bid you are saying "if you drop to this price I want in" Putting the bid price in is letting sellers know if they drop to your price on their ask you will buy.
Thanks! So, what is the purpose of the list price then? In the following scenario, why would the price be $17.44 if the ask/bids are so much lower? Bid - 17.24 Ask - 17.28 List - 17.44
Sorry, I'm not familiar with this "list" price you are talking about. I only see a current price / bid / ask. Keep in mind, prices of stocks are always fluid and strictly determined by that last transaction where a seller was willing to part with it at the price the buyer was willing to pay. That becomes the "current price" and may only be at that price for a second before it changes again.
Thanks! This all helped a lot. I just changed my setting to list price and the sale executed not too long after I ordered it, once it reached that price. This may sound like a really beginner question, but how is a stock's price determined when a company decides to openly trade? At conception of this, there aren't any sellers to determine the price. Would the company be considered the seller at this point and adjust their price until a demand floor is created?
This issue is pretty common if you trade low volume stocks on Robinhood. You might want to skim through this topic, we actually discussed it there: http://stockaholics.net/threads/robinhood-broker-message-board.692/ ------ For your last question, I will direct you to another link as I think they explain it there well in detail: http://www.forbes.com/sites/quora/2013/11/08/how-does-ipo-pricing-work/#4d3981c03712
