If you are just starting out trying to learn about trading stocks, you may have already opened an online trading account, or perhaps you are watching a particular stock just to get a feel for its movement. One thing to know before you pick a stock is that it really has two prices, the bid price and the ask price.

The bid priceis the price you will get if you sell your stock right now. It is always lower. Sometimes a little bit, sometimes a more sizeable amount.

The ask price, sometimes called the offer, is what you will pay per share to buy it. It is higher. Usually the two are pretty close together, too close for small timers like us to worry about, but on stocks with smaller trading volume, it can take a chunk out of your potential profit.

You need to be aware of these if you think you're going to make a quick buck turning a stock around quickly, because you will lose that amount, on top of the commission, right off the bat. The bid and ask price will drift farther apart and closer together with the volume being traded.

The difference between the two represents the profit margin for the market makers. Market makers are firms that hold quantities of stock to be bought from and sold to brokers, and then to you. This mark up is how they make their money, just like a convenience store marks up a bottle of soda. The higher the volume of sales, the lower the mark up needs to be to turn an acceptable profit. So generally stocks that are not trading at high volumes, lesser known or lower valued stocks, have a higher margin between the two.

The size represents the number of shares available at that price, both on the bid, and the ask side. This number appears near the bid and ask price, and needs to be multiplied by one hundred to get the true number. This will show the potential supply and demand on the stock.

Notice the picture below.  This is a snip-it from my Sirius stock.  The bid/size is listed as .5733/1600.  This means there are 160,000 wanted at that price, $.5733.

The ask/size is .5734/6400.  640,000 are available to buy at $.5734.  There are more shares for sale than there are buyers at the current price.

You'll notice the bid and ask are very close together.  This is not always the case, this very stock is an example.  If I recall, the bid/ask spread was around 5 or 10 cents earlier this year, when the stock itself was only worth between 30 and 40 cents.  The liquidity of the asset is a major factor.  Sirius is a lower valued stock currently, and small-cap stocks are considered less liquid, harder to turn to cash.

So boys and girls, pay attention to that bid/ask spread!