Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What does 'ask' represent in trading terminology?

1. The higher price at which a dealer is willing to sell

2. The lower price a dealer is willing to accept

3. The average price over the past week

4. The price at which stocks are traded on the exchange

The correct answer is: The higher price at which a dealer is willing to sell

In trading terminology, 'ask' refers to the higher price at which a dealer or seller is willing to sell a security. This price represents the minimum amount that a seller is prepared to accept for their shares. When traders are looking to buy, the ask price essentially indicates the lowest price a seller is willing to accept, making it a crucial part of the bid-ask spread, which is the difference between the buying (bid) price and the selling (ask) price. This concept is essential for understanding market transactions, as it helps traders decide when to enter or exit a trade. Knowing the ask price allows buyers to gauge how much they will need to pay to purchase a stock or security at a given moment. In contrast, the other options do not accurately capture the meaning of 'ask' in the trading context. For instance, the lower price a dealer is willing to accept pertains to the bid price, while the average price over a week or the price at which stocks are traded on the exchange does not specifically define the 'ask' price. Understanding these distinctions is vital for anyone involved in trading or investing in the securities markets.