Reduced Spread

AAA

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.

INVESTOPEDIA EXPLAINS '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. Market-Maker Spread

    The difference between the price at which a market maker is willing ...
  2. Nasdaq

    A global electronic marketplace for buying and selling securities, ...
  3. Atlantic Spread

    An options trading strategy that involves purchasing both an ...
  4. Spread

    1. The difference between the bid and the ask price of a security ...
  5. Ask

    The price a seller is willing to accept for a security, also ...
  6. Best Ask

    The lowest quoted offer price among all those offered by competing ...
RELATED FAQS
  1. What is the difference between shares outstanding and floating stock?

    Shares outstanding and floating stock are different measures of the shares of a particular stock. Shares outstanding is the ... Read Full Answer >>
  2. What is the difference between market risk premium and equity risk premium?

    The only meaningful difference between market-risk premium and equity-risk premium is scope. Both terms refer to the same ... Read Full Answer >>
  3. What is the difference between the QQQ ETF and other indexes?

    QQQ, previously QQQQ, is unlike indexes because it is an exchange-traded fund (ETF) that tracks the Nasdaq 100 Index. The ... Read Full Answer >>
  4. What is the difference between an investment and a retail bank?

    The activities and types of clients for an investment bank versus those for a retail bank highlight the primary difference ... Read Full Answer >>
  5. Will technology ever disrupt the role of the custodian bank?

    Custodian banks, along with other financial institutions that hold custodian accounts, are likely to be disrupted but not ... Read Full Answer >>
  6. What is the average range for the price-to-earnings ratio in the electronics sector?

    Investors purchase shares of company stock and other traded securities through capital markets in either primary or secondary ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Principal Trading and Agency Trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on and find out!
  2. Investing Basics

    The Basics Of The Bid-Ask Spread

    The bid-ask spread is essentially a negotiation in progress. To be successful, traders must be willing to take a stand and walk away in the bid-ask process through limit orders.
  3. Trading Strategies

    Introduction To Trading: Scalpers

    This type of trader makes many trades per day to "scalp" a small profit from each trade. Find out how it works.
  4. Options & Futures

    Bond Spreads: A Leading Indicator For Forex

    Here we examine some telling patterns in the relation between countries' interest rates and their currency pairs.
  5. Credit & Loans

    Interest-Only Mortgages: Home Free Or Homeless?

    These loans can be beneficial, but for many borrowers, they present a financial trap.
  6. Forex Fundamentals

    Understanding the Floating Exchange Rate

    Floating exchange rate is the exchange rate between two currencies at any given time.
  7. Investing Basics

    List of the Major Stock Exchanges in the Caribbean

    Though the Caribbean is well-known for its beautiful beaches and vibrant music, it has an emerging capital market that should not be ignored.
  8. Investing Basics

    Understanding NASDAQ

    NASDAQ is an acronym that stands for the National Association of Securities Dealers Automated Quotation system.
  9. Investing Basics

    Explaining the Equity Market

    Equity market is a general term referring to a place were corporate stocks are sold.
  10. Economics

    Is The Yuan The New Greenback?

    China is increasingly top of mind for investors. While bulls see an opportunity in a massive equity rally, bears are focused on a slowing economy.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!