Bid Price Higher Than Ask Price? Something’s Up!

Posted in Stocks

Day trading is a gamble, no doubt about it. But it’s also a test of character. It’s a combination of how fast you can react on breaking news, how confidently you can invest money, and how quickly you can execute the respective orders. People who waste time deciding whether or not to invest are the losers; people who jump on each and every opportunity for money are the short-term winners. In day trading, you’re not deciding who’s going to hold onto your money for months, or years. You’re deciding who gets the chance to hold onto your money for seconds. So you gotta make up your mind fast, or you’ll lose out on some real money making opportunities.

Today, however, I experienced something somewhat out of the norm of day trading. The ask price of a stock is almost always higher than the bid price, I mean, that’s basically the foundation of the stock market. Seller offers higher than what the stock is worth, and buyer offers lower than the stock is worth. Simple. There have been a few times during after-hours wherein the bid price has risen above the ask price, but usually it’s because of some kind of transaction error or stale market data, and whatever asking/bidding (selling/buying) that goes on does not reflect the stated price.

Ambac (ABK) stock is shown above. As you can see, between 15:31 and 15:33, the bid price suddenly spiked above the ask price. Keep in mind the stock was nearly stagnant for a good ten minutes before this happened.

MBIA (MBI) stock is shown above. Considering MBIA is also a bond insurer, and also suffering from the same CDO (Collateralized Debt Obligation) mumbo-jumbo that Ambac is going through, the two companies tend to have the same ups and downs.

Anyways, I immediately called my TD Ameritrade representative and asked for assistance. Being as this is quite the anomaly in regular hours trading, I had to get to the bottom it. Meanwhile, I also purchased 300 shares of MBIA at 15:31:30, priced at 11.82, even though the bid price was 11.91. Wow, what a deal! I bought stock for lower than what other bidders are offering. So yes, I happened to be one of the two purple circle trade markers on the green ask price line on the MBIA chart at 15:31:30.

The TD Ameritrade representative wasn’t of much help, but she did get her supervisor to confirm that there were no errors in my transaction. I’m led to believe by the broker that I got stock for a bargain price because a handful of news was just released to investors. Therefore, there was not enough time for the sellers to adjust their asking prices, even though the bidders were successfully purchasing stock at the higher, anticipated price, and raising the bid value of their own shares. Talk about some news, Ambac and MBIA continued to rise till the end of the day and even into after hours.

I recovered a good portion of my losses from yesterday. Thank God.