New to investing, or been at it awhile but never ventured past the buy/sell buttons? Start with understanding how to read stock quotes and other summary information.
The metrics surrounding stock quotes are intended to help investors get a multi-angled view of a security’s price
Interpretation of these metrics often requires a nuanced understanding of the company and its business
Maybe you’re new to the stock market. Or maybe you’ve been investing for a number of years but haven’t really taken the time to explore the suite of metrics on your trading dashboard. You know how to use the buy and sell buttons, but you don’t quite understand all the seeming minutiae scattered across your screen—things like historical high, % held by institutions, market cap, ex-dividend date, and so on.
In the corner of your mind, you’re probably thinking: “Hmm, maybe this is important stuff.” If that’s the case, you’re right. But depending on your objectives and the types of stocks you’re investing in, some may be more important than others.
All those details are there to help you understand how to read a stock quote from different angles. They help provide a comprehensive view on an asset you may end up buying, selling, or leaving alone. So, if you’re not completely familiar with this information, have a seat, grab a beverage, and let’s go over each item. The details may seem overwhelming at first, so you might want to take it in small doses. Or save this as a handy reference guide.
Want to follow along using your favorite stock? Log in to your account at tdameritrade.com and type the symbol into the box in the upper right to pull up the Summary tab (or navigate first to Research & Ideas). If you’re not a TD Ameritrade client—or you don’t have the platform handy—refer to figure 1.
You’re likely familiar with the first two terms, unless you’ve been buying or selling stock exclusively by placing market orders (not always the best way to enter and exit trades, by the way).
Beyond this, much of the information surrounding your trading dashboard may seem self-explanatory. Other terms, however, may be completely unfamiliar. Investors sometimes avoid the unknown if they can still buy and sell shares. There’s a lot of critical information there, though, so don’t miss out. Here’s your stock market cheat sheet.
Markets (and the stock within it) are in constant fluctuation—sometimes a lot; sometimes a little. Sometimes it’s pushing new boundaries to the upside or downside, and sometimes it stays in a tight range. There’s an entire philosophy—technical analysis—devoted to studying these movement dynamics. But here’s a quick rundown.
Answers the question: “At what price did the stock close the previous trading day?”
Tells you the first price the stock traded today after the opening bell.
Tells you how high and low the stock has traded since today’s market open. Important: This range may expand throughout the day.
Answers the question: “How large or small is the volume of shares being traded for this stock?” Note: It gives you a 10-day average (that’s 10 business days, so it measures activity over roughly two weeks).
Answers the question: “When was the last trade for this stock and how many shares were bought/sold?”
Tells you the highest and lowest price the stock traded in the last year (52 weeks). Important: One-year highs and lows are typically considered “critical” levels, especially when a stock trades above its one-year high (possibly a bullish signal) or below its one-year low (possibly a bearish signal). Read more about bull and bear markets.
Answers the question: “How far is the stock’s current price from its 52-week high?” Important: When a stock approaches its 52-week high, it can be a bullish signal or the stock is topping out—either way, brace for potential volatility.
Answers the question: “Is this stock unusually jumpy right now, or is it typically this volatile?” The higher a stock’s historical volatility percentage, the greater its volatility risk.
You can’t study investing without coming across the warning that: “Past performance does not guarantee future results.” So, there’s no actual predictive power in technical analysis. But things like momentum, range, consolidation, breakouts, and more are used by many traders to help inform their decision on direction, magnitude, and timing.
In contrast to technical analysis, fundamental analysis looks at a company from within—its financial metrics, its business model, its profitability, and so forth. Although entire books, study curricula, and professional certifications are produced on the subject each year, a quick overview can get you started.
Tells you the total dollar value of a company’s shares on the open market. A significant change in share value, changes in the number of shares issued, and any exercise warrants on a company’s stock could impact a company’s market cap.
Answers the question: “How many shares are currently held by all shareholders, including institutional investors (aka the big players) and even the company’s officers and employees?”
Answers the question: “How is a company’s net profit reflected in each share that I hold?” Important: EPS is derived by dividing a company’s net profit by its total outstanding common shares. It’s one of two metrics (the other being revenue) that analysts often forecast for the coming earnings quarter.
Tells you how much investors are currently paying for a stock above its per-share earnings. Important: This is perhaps the most widely used metric among investors, but it does have quite a few blind spots. You might want to use it in conjunction with other metrics as well.
Answers the question: “Given a company’s dividend history, how much might I expect to receive in annual dividend payments per share in dollar and percentage form?”
No dividend is guaranteed. A company can choose to change its dividend offerings, so if you’re investing in a stock mainly for its dividends, you might want to keep an eye on them every now and then. The same can be said for the profitability measures above. They can and do change, which is why many investors stay glued to corporate earnings each quarter.
Tells you if you missed the cut-off date for the next round of dividends. If you bought shares on or after the ex-dividend date, you might have to wait for the next dividend pay period. If you trade options, it’s particularly important to know dividend dates, as it can affect options prices and positions.
Answers the question: “How volatile is this stock?” Beta is similar to historical volatility as a gauge, but it’s more about the company’s volatility relative to the broader market. If a stock’s beta is at one, then it’s expected to move roughly with the broader market; if it’s greater than one, it might be more volatile than the broader market. By definition, the S&P 500 Index (SPX) has a beta of one.
Some investors like to know who the big players are—those holding the stock as well as those who think it’s primed for a pullback.
Answers the question: “How much of the company’s total shares are owned by larger financial institutions, such as investment banks, pension funds, mutual funds, hedge funds, and insurance companies, among others?”
Tells you the ratio of shares sold short from the total number of shares available for trading (the float).
Institutional investors are seen as being in it for the long haul. Plus, institutions often have professional money managers who are vetting stocks to include. But other funds—such as index funds—are bound by the criteria set forth in the fund’s prospectus. So it’s not a perfect metric.
Then there’s short interest, and there are two ways to look at it. First, when the ratio of short interest to float is elevated—above 0.20 (20%) perhaps—this might suggest that sentiment is fairly bearish. Second, when the ratio is above 0.50 (50%), if a stock were to rally quickly, short sellers might have a difficult time buying back shares to cover. This can drive prices up due to a “short squeeze.”
These metrics might be a lot to digest all at once, but learning how to interpret them is part of becoming a more knowledgeable investor. And here’s the thing: We’ve only scratched the surface. Once you’ve gotten the hang of these, feel free to dive more deeply into the other tabs in the trading platform.
But it all starts with understanding the stock quote and other summary info.
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