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 Articles
  1. Principal Trading and Agency Trading
    Investing Basics

    Principal Trading and Agency Trading

  2. The Basics Of The Bid-Ask Spread
    Investing Basics

    The Basics Of The Bid-Ask Spread

  3. Introduction To Trading: Scalpers
    Trading Strategies

    Introduction To Trading: Scalpers

  4. Bond Spreads: A Leading Indicator For ...
    Options & Futures

    Bond Spreads: A Leading Indicator For ...

Hot Definitions
  1. Return On Sales - ROS

    A ratio widely used to evaluate a company's operational efficiency. ROS is also known as a firm's "operating profit margin". ...
  2. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  3. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  4. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  5. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  6. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
Trading Center