Bid-ask spread: what it is, what it costs and how to read it

Every stock that trades has two prices at once. The bid is the highest price anyone is currently willing to pay for it. The ask, also called the offer, is the lowest price anyone is currently willing to sell it for. The gap between them is the bid-ask spread, and it is one of the few costs of investing that never shows up as a line on your statement.

If you buy at the ask and sell at the bid, you lose the spread even if the stock's price doesn't move at all. For a heavily traded stock that cost is a fraction of a cent per share. For a thinly traded one, or for any stock in the middle of the night, it can be several percent. This guide explains where bids and asks come from, how the national best quote is assembled, how to calculate what a spread costs, and how to keep that cost small.

Bid, ask and size

A quote on a broker app usually looks like this:

Bid 25.00 × 800 · Ask 25.04 × 500

The first number is the price, the second the size: how many shares are available at that price (some apps show size in round lots of 100 shares instead, so "8" can mean 800). Here a buyer can purchase up to 500 shares immediately at $25.04, and a seller can sell up to 800 immediately at $25.00. The spread is $0.04 and the midpoint, halfway between the two, is $25.02. The midpoint is the best single estimate of what the stock is "worth" at that instant.

The last price is something else again: the price of the most recent trade. In a busy stock it sits between the bid and ask. In a quiet one it can be minutes or hours old and no longer reflect the current market at all.

Where bids and asks come from

Each exchange keeps an order book for every stock: a list of resting limit orders, buy orders at or below some price and sell orders at or above some price. The highest buy order is that exchange's best bid; the lowest sell order is its best ask. Orders behind them form the depth of the book.

Many of those resting orders come from market makers: firms that continuously post both a bid and an ask. On US exchanges, registered market makers take on obligations to keep a two-sided quote within set ranges. They profit by buying at the bid and selling at the ask over and over, and they lose when prices move against the inventory they are holding. The spread is their pay for providing liquidity, the ability to trade right now without waiting for a natural buyer or seller to show up.

The NBBO

Because a US stock trades on many exchanges at once, each exchange has its own best bid and ask. Under Regulation NMS, adopted by the SEC in 2005, those quotes are collected by the securities information processors and combined into the national best bid and offer (NBBO): the highest bid and the lowest ask available anywhere among the exchanges. If Nasdaq's best bid is $25.00 and Cboe's is $25.01, the national best bid is $25.01.

The NBBO matters because it is the benchmark everyone is measured against. Exchanges generally may not trade through a better protected quote displayed elsewhere, and brokers' best-execution obligation is judged against it. When a wholesaler fills your order at a price better than the NBBO, that difference is called price improvement.

Tick sizes

Prices move in minimum steps called ticks. Under the SEC's Rule 612, stocks priced at $1.00 or more have long been quoted in increments of one cent, and stocks below $1.00 in increments as small as $0.0001. That one-cent floor is why so many liquid stocks show a spread of exactly one cent: it is the smallest spread allowed. In September 2024 the SEC adopted a half-cent ($0.005) tick for stocks priced at $1.00 or more whose time-weighted average quoted spread is $0.015 or less. Its compliance date has been postponed twice, most recently in June 2026 to the first business day of November 2027, so as of October 2026 the penny tick still applies.

What a spread costs you

A 0.16% cost sounds tiny, and for a long-term investor buying once and holding for years it is. It adds up for frequent traders. Someone who makes that same round trip 100 times in a year pays $4,000 in spread on a $25,000 position, 16% of the capital, before commissions, taxes or a single bad trade.

Liquid versus illiquid

The same arithmetic produces wildly different results depending on the stock.

That 2,800-fold difference in percentage cost is why traders care so much about liquidity, and why the same strategy can work in large stocks and fail in small ones.

What makes spreads wider or narrower

Trading volume. The more shares trade each day, the more competition there is among market makers and the narrower the spread.

Volatility and uncertainty. When a price is jumping around, a market maker risks being caught on the wrong side, so it quotes wider. Spreads widen around earnings releases, big economic reports and market-wide sell-offs.

Time of day. Spreads are typically widest in the first minutes after the 9:30 a.m. open, when overnight news is still being priced, and narrow through the day. Outside regular hours they widen sharply; FINRA lists wider spreads among the main risks of extended-hours trading.

Share price. Because the minimum tick is a cent, a $5 stock with a one-cent spread costs 0.2%, while a $500 stock with a one-cent spread costs 0.002%. Low-priced stocks carry a structural cost.

Information gaps. Companies with little analyst coverage, few institutional holders or questions about their accounts tend to have wider spreads, because whoever quotes them faces more risk of trading with someone who knows more.

How to keep spread costs down

1. Use limit orders. A limit order sets the worst price you'll accept. Placing a buy limit at or near the midpoint can save part of the spread, at the risk of not being filled if the price moves away.
2. Check the spread before you trade. Look at the bid, ask and sizes, not just the last price. If the spread is more than a fraction of a percent, a market order deserves a second thought.
3. Avoid the first minutes and extended hours if you have no reason to trade then.
4. Prefer liquid instruments when you have a choice. For broad exposure, a heavily traded ETF usually costs less to trade than a thinly traded one tracking a similar index.
5. Mind the size. If your order is larger than the size shown at the best price, the rest fills at worse prices deeper in the book.

Spread terms compared

How Finabase helps

Every symbol page shows the live bid and ask with their sizes right under the price, along with the last trade's time and size, so you can see the current spread before you place an order with your broker. The trending page lists trending stocks plus the biggest pre-market and after-hours movers, the names where wide extended-hours spreads are most likely to matter. Finabase is a research tool: it shows quotes but does not route or execute orders.

For the venues that create these quotes, see Stock exchanges explained: NYSE, Nasdaq and where your order goes; for why spreads widen at night, see Stock market hours: regular, pre-market, after-hours and overnight.

Frequently asked questions

Do I pay the bid or the ask when I buy?

When you buy with a market order you pay the ask, the lowest price a seller is offering. When you sell with a market order you receive the bid. A limit order lets you set a price between them and wait for someone to meet it.

What is a good bid-ask spread?

For large, heavily traded US stocks and ETFs, a spread of one or two cents, a few hundredths of a percent or less, is typical. A spread above about 0.5% of the price signals a thinly traded security where trading costs deserve attention.

Why is the spread so wide before the market opens?

Fewer people trade before 9:30 a.m. ET, so fewer market makers are quoting and there is less competition between orders. Some extended-hours venues are also not linked to one another, so the best price on one may not be visible or reachable from another.

Who keeps the spread?

Whoever provides the liquidity: the market maker or investor whose resting order was on the other side of your trade. When a wholesaler gives you price improvement, it keeps less of the spread and you keep more.

Summary

The bid-ask spread is the price of immediacy. The bid is the best price to sell, the ask the best price to buy, and the NBBO combines the best of each from every US exchange. Market makers earn the spread for standing ready to trade, and you pay roughly half of it every time you trade with a market order. For liquid stocks and ETFs that cost is a rounding error; for thinly traded stocks, at the open or after hours it can be several percent per round trip. Reading the bid, ask and size before every order, and using limit orders when spreads are wide, keeps that hidden cost under control.