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. Best Bid

    The highest quoted bid for a particular trading instrument among ...
  5. Best Ask

    The lowest quoted offer price among all those offered by competing ...
  6. Bid-Ask Spread

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

    What's the difference between bid-ask spread and bid-ask bounce?

    Understand the difference between the bid-ask spread that determines the buy or sell price for a stock and a bid-ask bounce, a situational price volatility.
  7. Options & Futures

    How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option writing.
  8. Trading Systems & Software

    How do you trade put options on Ameritrade?

    Learn about option trading with TD Ameritrade. Explore the different types of options and their possible impacts on the investors that write them.
  9. Options & Futures

    Are put options more difficult to trade than call options?

    Learn about the difficulty of trading both call and put options. Explore how put options earn profits with underlying assets fall in value.
  10. Economics

    What's the relationship between r squared and beta?

    Learn about the relationship between R-squared and Beta. Explore how the concepts are related and often used in conjunction with portfolio Alpha.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center