What Is a Best Ask?
A best ask (also known as a best offer) is the lowest offer price from competing market makers or other sellers for a quoted security. The ask (offer) price is effectively the lowest price a seller is willing to take for an asset, and is the most favorable price a buyer could expect to pay using a market order at that time.
The best ask is complemented with the best bid, which is the highest price a market participant is willing to pay for a security at a given time.
Key Takeaways
- The best ask (best offer) refers to the lowest offer price available from among sellers quoting a security.
- The best ask represents the lowest price a seller is willing to accept for an asset.
- The best ask is half of the national best bid and offer, or NBBO.
Understanding Best Ask
In financial markets, potential buyers are said to offer their purchase price by stating a "bid" offer or price. The ask is the other side of a transaction. The ask price is the price a potential seller is willing to offer a security for purchase at. Because various brokers, agents, and investors each have a unique price they're willing to buy and sell at, a range of possible price levels is maintained in an order book or electronically. The best ask is simply the lowest (or best) price someone is willing to sell a basket of securities at.
A best ask may also refer to the lowest price that a given individual market participant is willing to sell, in which case it would be their best ask, and not necessarily the market's best ask.
National Best Bid & Offer (NBBO)
The National Best Bid and Offer (NBBO) are the bid and ask prices that traders and investors typically see. Active traders, short-term traders, and day traders will often study Level 2 quotes that include all the current bids and asks for a particular trading instrument. The NBBO is continually updated throughout the trading session so that customers have access to these prices.
The NBBO helps ensure that all investors receive the best possible price when executing trades through their broker without worrying about aggregating quotes from multiple exchanges or market makers before placing a trade. This helps to level the playing field forretail traderswho may not have the resources to always seek out the best prices across multiple exchanges.
The lowest ask price and the highest bid price are displayed in the NBBO and are not required to come from the same exchange. The best bid and ask price from a single exchange ormarket makeris called the "best bid and offer" rather than the NBBO. Dark pools and otheralternative trading systemsmay not always appear in these results given the less transparent nature of their businesses.
Traders that want to execute orders larger than those available through the NBBO should use an exchange or market maker’s depth of book data orLevel IImarket maker screens to know the other potential bid and ask prices that they could use to execute their order.
Example of Best Ask
For example, wirehouse brokers such as Morgan Stanley, Merrill Lynch, UBS, and Wells Fargo will all independently come to a selling price they're willing to sell stocks held in inventory at. Naturally, an investor wants to purchase (buy) at the lowest possible price. By adding the instructions to purchase at only the "best ask," they're ensuring the best possible price.
Trouble arises when only a certain amount of a given security is available at the lowest price. For instance, Morgan Stanley may have an ask price of $25.00/share for company ABC's stock, and they're willing to sell 25,000 shares at that rate. If a customer executes an order to purchase 30,000 shares at the best ask price, Morgan Stanley's lot wouldn't entirely fill the order request. Here's where other trading instructions come into play, such as all-or-none and allowance for a trade to be split.
