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Types of Securities Quotes: Firm & Subject

Instructor: Yusuf Abdullah

Yusuf has taught Science and Mathematics at school level and Finance and Economics at University level. He has recently earned his Ph.D in Financial Econometrics field.

This lesson deals with two different types of quotes for securities. Learn the difference between the types of quotes and their usage in trading on a daily basis.

Security Quotes

Sadiq is a securities dealer for a leading investment banking firm in Manhattan. He has been invited to a meeting with Nicole, who is the chairman of the board of directors for a big multinational conglomerate. Nicole is planning a hostile takeover of FGB Inc., which trades publicly. Nicole's conglomerate already holds 30% of the stocks and wants to increase its share to at least 51% to have a controlling stake. Nicole wants information about current market price quotes and security availability. She wants to avoid a tender offer because it can be costly.

Sadiq tells Nicole that FGB Inc. has quotes available, but the number of shares up for trade may not be enough for a controlling stake. However, a market buy order should be immediately placed to buy as much stock as possible. He explains market order as an order for securities at a current market price that is filled as soon as securities are available. A market order does not care about the price at which it is executed. This can be costly, but Nicole agrees because she needs as many shares as possible.

Types of Quotes

Nicole asks how the quotes are provided for the buyers. Sadiq tells her that the quotes are offered by the brokers and dealers at the price at which they would buy and sell securities. The buying price is the bid price, and the selling price is the ask price. The quotes are provided as bid-ask. The current quote for FGB Inc. is $28.25-$25.31, which means that the dealer and brokers would buy the share at $28.25 and sell it at $28.31. The difference between the quotes is the profit for the dealer and is known as spread.

Nicole understands the quotes and wants an assessment of the actual value of the stock before placing the trade. Sadiq tells her that nominal quotes from the dealers might help her determine a benchmark for the valuation.

Nominal Quote

Sadiq tells Nicole about the difference between available quotes in the market. Nominal quotes are provided by large dealers or market makers. Market makers are registered by an exchange to trade securities at the stock exchange by maintaining a ready inventory. They provide nominal quotes, which are non-binding quotes that serve as a yardstick for valuation of trades, especially margin trades. Since these quotes are non-binding, they are negotiable.

Nominal quotes are provided with a prefix such as FYI (for your information) or FVO (for valuation only). This helps differentiate them from the actual quotes. The method used for valuation for nominal quotes can differ from one dealer to another and is based on fundamental factors, including macroeconomic factors and behavioral factors of the investors. The dealers are not required to sell securities at the provided nominal quotes.

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