What Is the Bid-Ask Spread?
The bid-ask spread is the gap between the highest price a buyer will pay and the lowest price a seller will accept. Why it's a hidden cost of trading, and when it gets wide.
In one sentence
Bid-ask spread. The difference between the bid and the ask. It is a cost of trading, paid every time you buy at the ask and sell at the bid.
How it works
Every stock or ETF has two prices at any moment. The bid is the highest price someone is offering to pay. The ask is the lowest price someone is willing to sell at. The difference is the spread. Buy at the market and you usually pay the ask; sell at the market and you usually get the bid.
| Widely traded stock | Thinly traded stock | |
|---|---|---|
| Bid | $50.00 | $9.80 |
| Ask | $50.01 | $10.00 |
| Spread as a share of the price | 0.02% | 2.0% |
| Lost on a round trip of $5,000 | About $1 | About $100 |
No commission appears anywhere, but the round trip still costs money.
When spreads widen
Spreads tend to be narrow for heavily traded stocks and funds, where many buyers and sellers compete, and wider for investments that trade rarely. They can also widen when markets are turbulent.
Learn it properly
- Bid, Ask, and the SpreadPart 1: Foundations · Free