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increments the ask price by a notch before displaying the offered ask price. Yes, a bit of skimming.

If the stock happens to have lots of transactions, ask and bid prices start to move closer and the spread gets smaller since buyers compete with each other, sellers compete with each other, and the dealers compete with each other to move the shares as fast as possible and keep the action going. If the spread starts to grow, the transaction volume will decline as buyers and sellers wait for more favorable prices before taking any action. So in most cases high volume means low spread and low volume means high spread. It’s like a feedback loop. In some cases for super high-volume stocks (or when lots of shares move in a short period of time) you may notice that ask and bid prices are equal. That is because at that given point the ask price of one dealer may end up the same as the bid price for another one, and your broker shopping around for the best prices shows you the best ask and bid prices it can find. Of course at times the bid price may end up higher than the ask price coming from different dealers, but market action ensures that such a condition will not last for more than a few seconds.

You may be wondering what we mean by high or low volume stock. Volume refers to the number of shares that are traded, and sometimes it is used to determine the level of liquidity in a stock. In other words, how fast can an investor buy or sell shares of that particular stock. Another gauge of stock activity is the number of orders going through. If one million shares of a certain stock are traded, it may mean one trader selling the one million shares and ten buyers buying them, or one buyer placing a bid for one million shares, or any other combination. While the number of orders is used by some to determine liquidity, volume is the universal criteria investors use to gauge the level of activity in a stock. The average volume of shares per day traded over a specified period of time (for example one month) would be a good …