how quotation works
quotations represent two pieces of information for most asset classes the price an investor would need to pay to purchase an asset at a particular moment in time the lowest price asked by sellers and the price an investor would receive for the same asset if they sold it at the same time the highest bid by potential buyers together the difference between the two represents the liquidity cost an investor incurs when trading an asset since they must buy at the bid price and sell at the asking price as an asset s price starts to fall markets will see a concurrent divergence in the bid and ask prices that wider spread can make assets less liquid and difficult to move during broad market volatility quotations aren t confined just to bid and ask prices they also include high low open and close values for a given day a basic stock quote highlights these key data points to provide context around the current day s movements the spread between the open and close or high and low is often a reflection of the ongoing trend for example sharp changes between the open and close signal strong upward momentum and an interesting trading opportunity types of quotationsmost investors won t hesitate to connect the term quotation with stock prices but many other asset classes record quotes of the last price traded for instance fixed income markets also quote the bid and ask prices of a bond during regular trading hours in addition to bid ask spreads bond quotes showcase the asset s par value and yield to maturity bonds are quoted at a par value of 1 000 and the price is quoted as the percentage of its par value which is then converted to a point scale for example if a corporate bond is quoted at 97 then that means it is trading at 97 of face value meaning the actual cost to buy the bond is 970 par value also known as nominal value or face value is often converted to a numeric value and multiplied by 10 to determine a bond s cost a par value is a term used for investments that means original value it most commonly refers to the bond value when it was originally issued typically 100 or 1 000 to give an example let s say a bond is purchased for 100 and it increases in value over time and is worth 125 although the value of the bond is 125 its par value remains 100 if the bond loses value and is worth 75 the par value remains 100 in this instance as well par value is important because it determines the bond s maturity value as well as the amount of interest paid on the bond this rate is also commonly referred to as the bond s coupon rate stock quotes may be the first and most important consideration when placing trades but traders will always use additional information usually technical indicators before placing orders futures contracts and commodities also use quotes to provide investors and the finance audience relevant information about the asset quotations are used in the same way as other assets the difference being that the buyer of a futures contract is agreeing to purchase the asset at a predetermined price at a specified time in the future many investors use futures contracts to hedge trades or speculate on market movements a futures contract and futures are the same thing and investors commonly will only use the phrase futures when referring to futures contracts an example of a quotation in relation to a futures contract is if a trader purchases a futures contract for oil at 80 a barrel in one year that means one year from the purchase date the buyer is obligated to purchase that oil at 80 a barrel and the seller is obligated to sell it to them a benefit of trading futures contracts is that the trader does not need to place the entire trade amount with the brokerage they are instead obligated to make an initial margin payment example of a quotationapple inc aapl is a heavily traded public company due to the extreme liquidity of aapl stock trading it is simple and with very narrow bid ask spreads just as an example let s say aapl closed at 165 a share the day range might be 161 to 167 but at the end of the trading day it closed at 165 some traders during the day wanted to buy aapl stock some wanted to sell if aapl was trading at 163 at 10 30 am a buyer would see the bid ask spread which in this example would be 162 99 for the bid and 163 01 for the ask this is a very narrow spread of only two cents the buyer would then pay the seller the ask the seller would deliver the stock to the buyer and the transaction would be complete although the bid and ask are fundamental aspects of trading in financial markets when anyone refers to a quote they are almost always referring to the last trade price of the stock this is also the first and usually largest number you see when you are researching stocks frequently asked questions