what is selling price

A trader who wants to sell some shares


2021-04-26 18:20:18

A trader who wants to sell some shares, securities or currency is probably trying not to sell them at a current market price, but at a higher one. The lowest possible price would appeal to a trader who wants to buy something. Given these opposite positions, we have what we call a selling and a buying price. In order to conduct a trade, both sides should minimize the spread (the difference between selling and buying prices) and come to an agreement on favorable terms. There are various assessment principles for stock prices and other financial instruments such as options or currencies. However, a buyer is firstly interested in profit prospects, potential dividends and the financial state of the company. The price is determined by these key factors.  

A selling price is the price the market is willing to sell a contract for; as a trader, you use this price to buy. When you are placing orders, you have to remember that you enter and exit at two different prices. As you open a trade, you find yourself in the negative straightaway because you entered at the price which is geared towards making sure your broker collects spread profit. You are going to be at a small disadvantage because a selling price is a slightly worse price for you compared to the actual market price. The market price reflects the actual price of trading instrument and differs from a selling price in broker's favor. But this is their business model - charging commission which allows them to function. All in all, a selling price has any extra charges built in and in terms of investment, it eventually turns into an investor’s cost basis for the calculation of a profit or loss.  

When the market price increases, a seller adjusts buying price to a higher one. Similarly, a buyer also understands that if the market price went up, their chances to purchase something at a previous price are slim and increases a selling price as well. When the market price drops, the buyer is the first one to react and lower their price and after that so does the seller. However, bear in mind that short trading can work differently. To enter a short trade, you actually sell first and when you exit, you have to buy it back. The rule of thumb for short trades is you enter at a buying price and exit at a selling price. Sometimes after entering the trade you will have your take profit at a certain place and you see the buying price below it wondering why it is not getting out. The reason is that the selling price has not hit it yet and you need to it to hit the exit points to trigger. 

If we consider a bullish scenario, we will see it is relatively the same thing but in reverse, you have to worry about your entry point. When you are entering long (essentially, buy), you do it at a selling price factoring the spread into that. There are circumstances where traders see the price touch their buy order and not trigger it in; the principle remains the same, meaning, you have to wait until the selling price reaches this level. If the price which you visually see on the candlestick chart touches the entry line and you placed your buy limit order right there, the chart price can come down, touch it and bounce. However, you are not going to be in that trade so you have to anticipate where the selling price will be.  

Let's take an example of how selling and buying prices interact. Supposing, there is a person willing to buy 100 shares of a particular company and there is also a person who wants sell 100 shares of the same company. Having done the research, brokers inform their clients that the maximum offered price is $10.5 per share and the minimum price requested is $10.75. Thus, a seller knows that the highest buying price is $10.5 and a buyer knows that the lowest selling price is $10.75. The trade is going to be fully done when either the buyer settles for 10.75 or the seller agrees to 10.5. These clients probably want to get the best deal possible and might not consent to initially proposed conditions. But if they made a market order, the buyer's price might go up to 10.6. This time, it may appeal to a seller whose proposal is also not filled yet. So remember that a well-timed analysis of these prices will give you certainty in your trading.  


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