The median price is the average of the bid and ask prices of a stock, while the bid-ask spread is the difference between them. The median price is used by newspapers but is not the actual trading price. Brokers adjust the spread to avoid losses, and the median price is a useful indicator of a stock’s value.
The median price is the average between the bid price and the ask price of a particular stock. This differs from the bid-ask spread, which is simply the difference between the bid price and the ask price, or offer price, of that stock. Many daily newspapers use the median price as the basis for the stock prices they publish, even though a buyer will not pay that price and the seller will not receive it. It is reported as such because it hits a midpoint between the extremes of the bid and ask prices.
When making investments, investors should be aware of the two sets of prices quoted by stockbrokers for any stock in which they may be interested. The bid price is the price at which the broker will buy an investor’s shares, and the ask price, also known as the bid price, is the price at which the shares will be sold. The bid price is always the lower number, with the difference between the bid and ask essentially representing a service fee to the broker. When the average between the bid price and the ask price is calculated, the resulting number is known as the median price.
For example, imagine that the closing offer price of a particular stock on one day is $35 US dollars (USD) per share, and the asking price is $37 per share. Calculating the average of any two quantities requires adding the two quantities and then dividing that sum by two. In this case, $35 USD is added to $37 USD, for a sum of $72 USD. That $72 USD is divided in two, yielding a median price for that stock of $36 USD.
Investors should keep in mind when preparing to buy or sell a stock that the median price is not the actual amount that brokers will quote as the buy or sell price. It’s a way for financial newspapers to do a sort of abbreviated share price report. If newspapers only report the average price, investors should note that depending on the difference between the bid and ask prices, this average price could differ somewhat from the actual trading prices.
The amount of margin that exists for a different stock can depend on a number of factors, including the liquidity of that stock and the volatility of the market as a whole. Brokers will adjust the spread to make sure they don’t incur losses. Also, certain spread betting companies will have wider spreads to make up for the absence of commissions. The median price is a good way for investors to get an idea of where the stock is, regardless of the difference between the bid and ask prices.
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