Bid-Ask Spread
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Definition of 'Bid-Ask Spread'The amount by which the ask price exceeds the bid. This is essentially the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it. |
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Investopedia explains 'Bid-Ask Spread'For example, if the bid price is $20 and the ask price is $21 then the "bid-ask spread" is $1.The size of the spread from one asset to another will differ mainly because of the difference in liquidity of each asset. For example, currency is considered the most liquid asset in the world and the bid-ask spread in the currency market is one of the smallest (one-hundredth of a percent). On the other hand, less liquid assets such as a small-cap stock may have spreads that are equivalent to a percent or two of the asset's value. Knowing the Bid-Ask spread could help in your investing strategy. Read How to Calculate the Bid-Ask Spread and The Basics of the Bid-Ask Spread to learn more about this concept. |
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How To Calculate The Bid-Ask Spread
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Find out more about this frequently referenced, but often misunderstood, term used to describe the price at which a stock is bought or sold at. -
I don't understand how a stock has a trading price of 5.97, but when I buy it I have to pay the asking price of 6.04. How can I be paying more than what the stock is trading for?
It might seem logical that the last traded price of a security is the price at which it would currently be trading, but this rarely occurs. The market for a security (or its trading price) is ... -
Why are the bid prices of T-bills higher than the ask prices? Aren't bids supposed to be lower than ask prices?
Yes, you are correct that the ask price of a security should typically be higher than the bid price. This is because people will not sell a security (asking price) for lower than the price they ... -
What are the determinants of a stock's bid-ask spread?
Stock exchanges are set up to assist brokers and other specialists in coordinating bid and ask prices. The bid price is the amount that a buyer is willing to pay for a particular security; the ... -
What do the numbers that follow the bid and ask numbers in stock quotes represent?
When looking at stock quotes, there are numbers following the bid and ask prices for a particular stock. These numbers usually are shown in brackets, and they represent the number of shares, ... -
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