Glossary
Bid-ask spread
The gap between the best bid and the best ask, an implicit cost paid by anyone who trades immediately at market.
On this page
The bid-ask spread is the difference between the highest price a buyer is offering (the bid) and the lowest price a seller will accept (the ask) for a security at a given moment. It is a cost that never shows up as a line on your statement: buy at the ask and sell at the bid immediately, and you lose the spread. How wide it is says a great deal about a security's liquidity.
How it is calculated
What drives it
- Trading activity. Heavily traded stocks and ETFs attract many competing buyers, sellers and market makers, which narrows the spread, often to the one-cent minimum.
- Price level and tick size. For stocks priced at $1 or more, quotes must be in whole cents, so a $3 stock with a 1-cent spread has a much larger percentage spread than a $300 one.
- Volatility and uncertainty. Spreads widen around earnings, at the open and in fast markets.
- Time of day. In pre-market and after-hours sessions, spreads are usually several times wider than at midday.
Limit orders let you avoid paying the full spread, at the risk of not getting filled. For options, spreads are often far wider in percentage terms than for the underlying stock.