Tuesday, September 8, 2009

Inside market

The following practice question is likely to show up on everybody's version of the Series 7 in some form or another. I'm betting it will be on there almost verbatim. Not that you could, like, prove me wrong, but in any case, by the time you schedule your Series 7 exam, you should be pretty confident answering a question like this one:

The inside market is:
A. highest bid, lowest ask from the market maker quoting the largest position
B. highest bid, highest ask from all market makers
C. highest bid, lowest ask from all market makers
D. lowest bid, highest ask from all market makers

EXPLANATION: when a customer places a market order to buy or sell stock, he is willing to pay the best available price ASAP to get the stock or sell it. The best prices for the customer would be the highest bid--if he's selling and the lowest ask/offer price--if he's buying.

ANSWER: C

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