Order types
Spread
The spread is the gap between the bid and the ask. It is a hidden cost you pay on every round trip.
The spread is the gap between the bid and the ask. It is a hidden cost you pay on every round trip.
The spread measures the difference between the buying price (ask) and the selling price (bid) at a given moment. The tighter it is, the more liquid the market and the less it costs you to get in and out. A wide spread often signals a thinly traded asset.
For an active trader, the spread matters as much as commissions: you pay it on every transaction. Trading highly liquid assets with a tight spread keeps that cost low.
With a bid of $49.98 and an ask of $50.02, the spread is $0.04. On 1,000 shares, that is $40 of cost from the gap alone.
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