Reduced Spread

DEFINITION of 'Reduced Spread'

A reduction in the spread between the buy/bid and sell/ask price for a security, currency, or loan. In most cases, a reduction in the spread signifies that a financial institution will experience a decline in its profit margin that it earns on its spread.

BREAKING DOWN 'Reduced Spread'

A reduced spread in loan rates translates to a reduction between the cost of funds for the lender and the rate at which these funds are lent out. Lending institutions can reduce their spread in response to factors such as, more competition from other creditors, less perceived risk in the lending market due to favorable economic conditions, or increased liquidity in the secondary market for these loans.

A reduced spread in currency markets will lower the difference between what a currency purchase is at and what the same currency is sold at. This could be due to an increase in expected volume. Bid-ask spreads contribute to the inefficiencies of matching currency buyers with sellers.

A reduced spread in the equity markets is a reduction in the gap between what a market maker is willing to buy or sell a stock at, if there is no other counter party for an order. This is done to ensure liquidity in the trading market, and to allow some additional profit to be generated. Spread goals of registered traders vary by company, depending on trading activity, issuer size and public float.

RELATED TERMS
  1. Spread

    1. The difference between the bid and the ask price of a security ...
  2. Spread Indicator

    An indicator that shows the difference between the bid and ask ...
  3. Net Interest Rate Spread

    The difference between the average yield a financial institution ...
  4. Bid-Ask Spread

    The amount by which the ask price exceeds the bid. This is essentially ...
  5. Ask

    The price a seller is willing to accept for a security, also ...
  6. Buy A Spread

    Option strategy that will be profitable if the underlying security ...
Related Articles
  1. Investing

    How To Calculate The Bid-Ask Spread

    It's very important for every investor to learn how to calculate the bid-ask spread and factor this figure when making investment decisions.
  2. Trading

    Trading Calendar Spreads In Grain Markets

    Futures investors flock to spreads because they hold true to fundamental market factors.
  3. Trading

    S&P 500 Options On Futures: Profiting From Time-Value Decay

    Writing bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions.
  4. Investing

    What is Spread?

    Spread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
  5. Trading

    Option Spreads: Vertical Spreads

    By John Summa, CTA, PhD, Founder of OptionsNerd.comLimiting Risk with Long and Short Options Legs We have seen that a spread is simply the combination of two legs, one short and one long (but ...
  6. Trading

    Retail FX Spreads: Do They Even Matter?

    Learn how retail forex spreads affect your ability to trade currencies.
  7. Trading

    Vertical Bull and Bear Credit Spreads

    This trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options.
  8. Trading

    Option Spreads: Credit Spreads Structure

    By John Summa, CTA, PhD, Founder of OptionsNerd.comNow that you have a basic idea of what an option spread looks and feels like (of course limited to our simple vertical bull call spread), let's ...
  9. Trading

    Why Is Spread Betting Illegal In The US?

    Spread betting is a speculative practice that began in the 1940s as a way for gamblers to win money on changes in the line of sporting events. But by 1970, the phenomenon trickled into the financial ...
  10. Trading

    What Is Spread Betting?

    The temptation and perils of being over leveraged is a major pitfall of spread betting. However, the low capital outlay necessary, risk management tools available and tax benefits make spread ...
RELATED FAQS
  1. What types of stocks have a large difference between bid and ask prices?

    Find out which factors influence bid-ask spread width. Learn why some stocks have large spreads between bid and ask prices, ... Read Answer >>
  2. What are some examples of financial spread betting?

    Learn how financial spread betting is done, and see examples of some of the ways that investors can use spread betting as ... Read Answer >>
  3. What are the biggest risks involved with financial spread betting?

    Learn about financial spread betting, the risks involved with spread betting and the dangers of placing financial spread ... Read Answer >>
  4. How do I set a strike price in an options spread?

    Find out more about option spread strategies, and how to set the strike prices for bull call spreads and bull put spreads ... Read Answer >>
  5. What's the difference between a credit spread and a debt spread?

    Learn about debit and credit option spread strategies, how these strategies are used, and the differences between debit spreads ... Read Answer >>
  6. What types of stocks have a small difference between bid and ask prices?

    Learn more about bid-ask spreads and why stocks with high levels of liquidity and low levels of volatility usually have narrow ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center