Glossary · from the DESK dictionary
Bid-Ask Spread
The difference between the highest buy bid and the lowest sell offer.
In plain words
The spread is essentially the "fee" market makers charge for a security's immediate tradability.
In more detail
Tight spreads usually indicate high liquidity, wide spreads indicate low liquidity or high uncertainty. The spread is an important implicit trading-cost component, especially for active traders.
Example
With a bid of $99.95 and an ask of $100.05, the spread is $0.10.
What it means for traders
A direct cost component of every trade and an important liquidity indicator.
Common pitfalls
For illiquid names, wide spreads can substantially raise effective trading costs.
Related terms
Ask Price · Ask Size · Bid and Ask · Bid-Ask Bounce · Ask (Offer Quote) · Decimalization · Hit the Bid · Inside Market · Liquidity · Market Maker · Market Maker Spread · Order Flow · Scalping · Top of Book
From the DESK dictionary. For information only, not investment advice.
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