Bid-Ask Spread

Category: business

The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask).

The spread is the "cost" of immediacy. In highly liquid stocks (like Apple or Microsoft), the bid-ask spread is a single cent. In thinly traded, "illiquid" stocks, the spread can be wide, meaning you lose a significant percentage of your investment the moment you execute a market order.

Common Examples

• The wide bid-ask spread on this small-cap stock makes it unsuitable for day trading, as the transaction cost eats all our potential intraday gains.
• Market makers earn their revenue by capturing the bid-ask spread across millions of shares traded daily on the major exchange floors.