Bid-ask spread
MarketsDefinition
The gap between the highest price a buyer is willing to pay (the bid) and the lowest price a seller will accept (the ask). The spread is the cost of trading instantly — you buy at the ask and sell at the bid, eating the difference.
Liquid stocks (Apple, SPY) have spreads of 1 cent. Illiquid micro-caps and exotic ETFs can have spreads of 1-5%, which crushes returns if you trade often. Always check the spread before placing a market order in something thinly traded.
Liquid stocks (Apple, SPY) have spreads of 1 cent. Illiquid micro-caps and exotic ETFs can have spreads of 1-5%, which crushes returns if you trade often. Always check the spread before placing a market order in something thinly traded.
Formula
Spread = Ask − Bid
Example
A stock shows bid $50.00 / ask $50.05. Spread = 5 cents = 0.1%. If you market-buy 1,000 shares at $50.05 and immediately market-sell at $50.00, you're down $50 from spread alone.