Another article is a financial literacy, in which I will explain to you what stock exchange quotes are in simple words. After reading this publication, you will learn what the concept of “stock quotes” means, what types they are, what an ask and a bid are, what a forward and reverse quotes are, how stocks, bonds, currencies, commodities are quoted, and many other things related to this term – economist Kirill Yurovsky.
What is a quote in simple words?
The term “quote” originally came from the French verb “coter,” which means “to measure.” Later this concept became more associated with the English expression “financial quote”, which means “financial rate”.
A quote is the value of an asset traded on an exchange at a particular point in time.
In simple words, it is the price at which bidders can buy or sell an asset right now.
Quotes for popular exchange-traded assets can change literally every second during the trading period, because they are formed based on supply and demand for the asset. The more market participants want to buy an asset, the more the quotes go up, and the more they want to sell it, the more they fall.
The term “quote” is applied only to exchange-traded assets, that is why such assets are called quoted, and the process of forming of quotes is called quoting. The term “quotation” is not used for non-exchange assets: the term “price” is used. The quotation differs from the price in that it consists of two parts: the purchase price and the sale price, which are called Ask and Bid respectively.
Ask and Bid Quotes
Participants of exchange trading, wishing to sell or buy an asset, put their bids with the prices at which they are ready to conclude a deal, forming the so-called stock market glass – a list of bids for purchase and sale, arranged in ascending and descending order of value. At the same time in the center of the “cup” the most favorable prices of supply and demand are formed – they form the current quotation.
- Ask (buy price, ask price) – the most favorable price at which it is possible to buy the exchange-traded asset at the current moment.
- Bid (ask price, bid price) – the most favorable price at which it is possible to sell the exchange-traded asset at the current moment.
Together Ask and Bid prices are the quotations.
For example, at the exchange there are bids for sale of the asset at the price of 150, 152, 157, 159, 160 units. The bids for the purchase of the asset at the price of 148, 147, 145, 143, 140 units. On the basis of these data the current quotation will be: Ask – 150, Bid – 148.
The special quotation commission is responsible for registration and publication of quotations at the exchange. Now it all happens in automatic mode.
What do stock exchange quotes mean?
Quotations for national exchange-traded assets are set, as a rule, in the national currency of the country. That is, for example on Russian exchanges Russian assets are quoted in rubles, on American exchanges – in dollars, on European exchanges – in euros, etc. But if foreign assets are sold on the national exchange – their stock exchange quotations are indicated in the currency in which they are denominated. For example, the quotations of American shares and bonds on the Russian exchanges are shown in dollars.
Quotations of securities, currencies and derivative financial instruments are established on the basis of 1 lot, which may include different numbers of asset units (for example, 1 share, 10 shares, 100 shares, etc.).
Quotations for exchange-traded commodities are set for generally accepted units of their measurement. For example, quotations of oil are established for 1 barrel, quotations of gold – for 1 troy ounce, quotations of gasoline or agricultural products – for 1 ton, etc.
Forward and backward quotes
There are two types of exchange quotations: direct and reverse.
- A direct quotation is an expression of a unit value of an exchange asset in the quantity of monetary units for which it can be purchased.
- Reverse quotation is the expression of a unit of money in the amount of an exchange-traded asset for which it can be purchased. In some countries reverse quotes are called indirect quotes.
Stock and bond quotes
Exchange quotations of securities differ in their format, depending on the type of securities.
Stock quotes are displayed in the form of Ask and Bid prices, at which you can buy or sell shares of a particular company, respectively.
Bond quotes are most often displayed as a percentage of par value, for which bonds can be bought or sold at a particular moment. They may deviate from the face value in either direction, and the closer the maturity date, the closer the quotations are to the face value.
Quotations at Forex currency market are displayed in the form of currency pairs – ratio of the price of one currency to the price of another. Верхняя валюта в числителе называется базовой, а нижняя — котируемой. In this case, when the value of the currency is expressed in U.S. dollars, the quotation is considered direct, and when the U.S. dollar value is expressed in another currency – inverse.
For example, dollar/franc is a direct quotation, and euro/dollar is an inverse quotation.
Currency pairs that do not include the U.S. dollar are called cross rates.
Quotes for government purchases
The only sphere, in which the “quote” concept differs from the exchange concept, is the sphere of government procurements.
Public procurement quotations are the minimum prices offered by suppliers of goods and services during public tenders and auctions.
According to the law, the companies that offer the lowest quotations while maintaining the required quality standards win in such tenders. In addition to designating a price, a company must submit the required package of documents in order to participate in a tender. All bids are checked by a special committee for legal validity. If the tender does not receive the required number of bids, it is re-tendered.
Where to watch stock exchange quotations online?
In conclusion, a couple of words about where to watch stock exchange quotes online in real time. Naturally, this can be done on the sites of stock exchanges, where one or another asset is traded. For convenience, you can also use aggregator sites, which transmit online quotes for different assets from different exchanges and different markets (stock, foreign exchange, cryptocurrency, commodity, etc.).
Now you know what stock exchange quotes are, how they are formed, what types of quotes exist, and you will be able to interpret this concept and the numbers you see on the stock exchange charts more intelligently.