Investopedia explains 'Bid And Asked'
The average investor has to contend with the bid and asked spread as an implied cost of trading. For example, if the current price quotation for security A is $10.50 / $10.55, investor X who is looking to buy A at the current market price would pay $10.55, while investor Y who wishes to sell A at the current market price would receive $10.50.
The bid-ask spread works to the advantage of the market maker. Continuing with the above example, a market maker who is quoting a price of $10.50 / $10.55 for security A is indicating a willingness to buy A at $10.50 (the bid price) and sell it at $10.55 (the asked price). The spread represents the market maker's profit.
Bid-ask spreads can vary widely depending on the security and the market. The blue-chips that constitute the Dow Jones Industrial Average may have a bid-ask spread of a few cents, while a small-cap stock may have a bid-ask spread of 50 cents or more. On a percentage basis, the difference between the bid and asked prices of the former may be much smaller than that of the latter.
The bid-ask spread can widen dramatically during periods of illiquidity or market turmoil, since traders will not be willing to pay a price beyond a certain threshold while sellers may not be willing to accept prices below a certain level.
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