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Bid-ask spread

The gap between the best bid and the best ask.

Orders & TradingBeginner

Definition

The spread is a built-in cost of trading: buy at the ask and sell at the bid and you lose the spread. Active, heavily traded stocks have spreads of a cent or so; thinly traded ones can be many percent wide.

Formula

Spread = ask - bid

How it is used

A wide spread signals low liquidity and higher trading cost.

Example

Hypothetical exampleIf the bid is $19.90 and the ask is $20.10, the spread is $0.20, or about 1% of the price.

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