Stocks & Commodities V. 23:5 (43): Q&A by Don Bright
SINCE YOU ASKED
Confused about some aspect of trading? Professional trader Don Bright of Bright Trading (www.stocktrading.com), an equity trading corporation, answers a few of your questions. To submit a question, post your question to our website at http://
Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.
Q: Is there a mathematical equation to figure out the bid/ask price? How do computers handle that information?
A: There is not really any mathematical equation, although there are automated systems. On listed stocks, there is a single place (where the specialist is) that handles all the orders. If they have
buyers at 30.10 and sellers at 30.20, then you will see either those prices or slightly better placed by the specialist. Over-the-counter (OTC) pricing is usually
a bit more fragmented, but can be wider or narrower, depending upon how many people are participating. With either market, the supply and demand usually determines pricing.