The offer price is also known as the ask price of a stock. The offer is the lowest price at which someone is offering to sell shares of a security. The lowest price at which shares are being offered is technically known as the national best offer. Any shares posted for sale on an order book is technically an offer. The offer price shows up opposite of the bid price on the stock’s order book.
When a trader posts shares to sell on a stock’s order book, they are said to be offering shares. A stock may have offers at many different price levels, as traders have posted their offers prior to the stock executing at the current price. All offers on the public ECN LIT markets are visible to the public. Dark pool offers are not visible to the public, but can be found by sending test orders.
The balance of bid quantity to offer quantity is an important piece of information traders may use to help identify future price movement. If there are more shares being offered than bid, it may be a sign that the price level will drop because the sell interest is greater than the buy interest.
Discovering dark pool offers can also be a valuable indicator of future price movement. Even though dark pool offers are not displayed, a trader may send test orders for the purpose of trying to identify the approximate size of offers in the dark pools. Sometimes when a LIT market is offering liquidity at a particular national best offer, there will not be any available liquidity in the dark pools at the same price. This can be a good indication that price will rise, as dark pool volume is viewed as very “intelligent” volume. Similarly by watching the tape of a stock a trader may identify that the dark pool prints are mostly transacting on the offer, which is an indication that there may be a large intelligent buyer. It should be noted that dark pool transactions cannot typically occur at a price away from the national best bid and offer.
Offers, or ask prices, are quoted in increments of one penny on all stocks over $1 in price. When a stock falls below $1 an offer or bid may be quoted in small fractions of a penny. Even though stock prices may not be quoted in increments of less than 1 penny on stocks over $1, transactions will occur at increments of fractions of a penny between the bid-ask spread.
Understanding how offer price movement, transactions, and quantity may affect future price movement is important for a trader to master to be a successful day trader.
