A best ask is simply the calculation of the lowest price that a seller is willing to entertain in return for selling off the shares of a particular security or set of securities. There are several factors to take into consideration when determining the best ask. Here are some examples of elements to sellers often determine before arriving at a best ask.
Essential to determining the best ask for securities is having a firm understanding of the level of investment in the security package thus far. Based on the amount of resources that were needed to acquire the security in the first place, the seller will usually want to recover the initial investment, as well as make at least a modest profit on the sale. Unless there are highly unusual circumstances, most sellers will not arrive at a best ask that will ultimately mean a financial loss.
Second, the market performance of the security will also play a role in determining the best ask. This will mean taking an intensive look at the history of the security price. If there is a trend of security prices rising modestly for a period of time, then hitting a plateau, then going through a slight dip before rising again, the seller may elect to sell shares based on this anticipation that the security is about to experience a rise within a short time. This can be used as a selling incentive, pointing to the past performance and making it possible to set a best ask that may be slightly higher than the current market value.
Last, a best ask may also be a reflection of the financial stability of the seller. In situations where the seller is experiencing a cash crunch, and needs to liquidate assets quickly, the best ask may in fact not cover all the investment that has been made into the security up to that point. The need to realize an influx of liquid assets may over-ride the logical approach of never selling a security for less than it is worth.
When this happens, buyers can find some great bargains on best ask prices, and thus greatly increase the value of his or her own financial portfolio. For the seller, setting a best ask price when there is a financial crisis pending often means losing resources in the short term, but does have the advantage of allowing the investor to get past current problems and begin to build up the investment portfolio again.
