Trading
Bid-Ask Spread
Every quote has two sides: the bid, what buyers offer, and the ask, what sellers demand. The spread between them is effectively a transaction cost that traders pay to get in and out of a position.
Highly liquid assets like large-cap stocks have tiny spreads, while thinly traded securities can have wide ones. A wide spread means you buy a bit higher and sell a bit lower than the mid price.
Active traders watch spreads closely because they eat into returns, especially for frequent trading. Tight spreads are a hallmark of a healthy, liquid market.
Example
If a stock is bid at $9.98 and offered at $10.02, the bid-ask spread is 4 cents.
Bid-Ask Spread — FAQ
What is 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, representing a key cost of trading.
Can you give an example of Bid-Ask Spread?
If a stock is bid at $9.98 and offered at $10.02, the bid-ask spread is 4 cents.
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