Ask Size in Trading: Definition and Importance

What Is Ask Size?

Ask size refers to the number of shares or securities a market maker offers to sell at a specific ask price. This figure gives insight into the supply available for potential buyers at that price point. Understanding ask size helps investors assess market liquidity and determine the supply side's strength in a transaction. By knowing the ask size, buyers can make informed decisions about the potential cost and availability of a security. Ask size plays a crucial role in understanding the dynamics of supply and demand in stock trading. With this understanding, investors can make better-informed investment decisions.

Exploring the Concept of Ask Size

Market makers are the ones who offer to buy and sell securities. The market maker must state the price it is asking for a given security (the ask price) and the amount it is willing to sell at that price (the ask size). Also, the market maker must state the price at which it is willing to buy the security (the bid price) and the amount of securities it is willing to buy (the bid size). When a customer order comes to the exchange, the order is filled by the market marker with the lowest ask price (for buy orders) or the highest bid price (for sell orders).

Ask price and bid price numbers are usually shown in brackets in a price quote. They represent the number of shares, in lots of 10 or 100, that are limit orders pending trade. These numbers are called the bid and ask sizes and represent the aggregate number of pending trades at the given bid and ask price.

The Mechanics of Bid and Ask Prices

Consider a stock quote for XYZ Corp. with a bid of $15.30 (25), and an ask of $15.50 (10). The bid price is the highest bid entered to purchase XYZ stock, while the ask price is the lowest price entered for this same stock. The numbers following the bid and ask prices indicate the number of shares that are pending trade at their respective prices. In this example, the current limit bid price of $15.30, there are 2,500 shares being offered for purchase in aggregation. The aggregation is for all bid orders being entered at that bid price, no matter if the bids are coming from one person bidding for 2,500 shares, or 2,500 people bidding for one share each. The same is true for the numbers following the ask price.

The spread between the two prices is called the bid-ask spread. If an investor purchases shares in XYZ, they would pay $15.50. If this same investor subsequently liquidated these shares, they would be sold for $15.30. The difference is a loss to the investor.