Bid-Ask Spread
The bid-ask spread is the gap between the highest price a buyer is offering (the bid) and the lowest price a seller will accept (the ask).
Every tradable asset has two prices at any moment, not one. Buyers bid, sellers ask, and the gap between them is the spread. It is the cost you pay every time you trade immediately — invisible on most charts, absent from most fee schedules, and yet one of the largest costs for anyone who trades often.
- Category
- Market Structure
- Reading time
- 6 min
- Also called
- Spread, Bid, Ask
- Updated
The spread in plain words
Think of a currency exchange booth at the airport. It buys euros from you at one price and sells them to you at a higher price. If you swap money and immediately swap it back, you lose the difference. That difference is the spread.
Markets work the same way. The bid is the most a buyer will currently pay; the ask (or offer) is the least a seller will currently accept. The bid is almost always lower than the ask, and the difference is called the spread.1
How the spread affects a trade, step by step
You see two quotes
For example $49.98 bid and $50.02 ask. The midpoint, $50.00, is a useful reference price, but nobody is offering to trade there.
Buying immediately pays the ask
A market order to buy executes against the best ask: $50.02.
Selling immediately receives the bid
A market order to sell executes against the best bid: $49.98.
The round trip costs the spread
Buy at $50.02, sell at $49.98, and you have lost $0.04 per share before the price has moved at all. The spread is a cost of trading that reduces returns, on top of any commissions.2
Your position starts slightly negative
Straight after a market buy, your position is valued nearer the bid, so the price must move by about the spread just for you to break even.
Worked examples
Example 1 — A liquid stock
TightQuoted $49.98 bid / $50.02 ask. You buy 500 shares at market and sell them straight back.
| Spread | $0.04 |
| Spread as a share of the $50 mid price | 0.08% |
| Round-trip cost (500 × $0.04) | −$20.00 |
Small for a single trade. Twenty round trips a month adds up to $400, or $4,800 a year, at the same size.
Example 2 — A thinly traded stock
WideQuoted $9.80 bid / $10.20 ask. You buy 200 shares and sell them straight back.
| Spread | $0.40 |
| Spread as a share of the $10 mid price | 4.0% |
| Round-trip cost (200 × $0.40) | −$80.00 |
The price has to rise 4% just to break even. Low-volume assets generally have wider spreads; more liquid ones tighter spreads.2
Example 3 — The same stock after hours
After hoursOutside the regular session, the liquid stock from Example 1 is quoted $49.70 bid / $50.30 ask.
| Spread | $0.60 (1.2%) |
| Round-trip cost for 500 shares | −$300.00 |
| Same trade in regular hours | −$20.00 |
Reduced trading interest in extended hours generally means wider spreads, or no quotes at all.3
The spread as a round-trip cost
Try it: what does the spread cost you?
Enter a bid, an ask, your trade size and how often you trade. The calculator shows the cost per round trip, per month and per year. It runs in your browser.
| Spread | $0.04 (0.08% of the mid price) |
| Cost per round trip (buy at ask, sell at bid) | −$20.00 |
| Cost per month | −$400.00 |
| Cost per year | −$4,800.00 |
Assumes the spread stays the same and you trade at the quoted prices; commissions and slippage come on top.
What makes spreads wide or tight
| Aspect | Tighter spreads | Wider spreads |
|---|---|---|
| Trading volume | High volume, many participants2 | Low volume, few participants |
| Time | Regular trading hours | Pre-market, after hours, holidays3 |
| Conditions | Calm markets | News, uncertainty, volatility |
| Asset | Large stocks, major ETFs, major currency pairs | Small caps, exotic pairs, small crypto tokens |
Why the spread matters
It is a real trading cost
In forex, the spread is an inherent cost of trading: the wider it is, the more it costs to buy and sell, apart from any commissions.4
It signals liquidity
A tight spread usually means many buyers and sellers. A sudden widening is an early sign that liquidity is drying up.
It decides your order type
When the spread is wide, a limit order near the midpoint can save much of it; a market order pays all of it.
It shapes short-term strategies
For scalpers and day traders, spreads can consume a large share of each small target. See Scalping.
Advantages and disadvantages
Advantages
- Visible before you trade: you can check the cost in advance.
- Shows at a glance how liquid an asset is right now.
- Can be reduced with limit orders and by trading in active hours.
Disadvantages
- A cost on every immediate trade, often overlooked because it is not itemised.
- Widens unpredictably around news and outside regular hours.
- Hurts frequent traders most, because it is paid on every round trip.
Going deeper
Read as far as you need. Each level builds on the one before it.
Look at bid and ask, not the last price
Beginner
The last traded price shows where someone traded a moment ago. What you can trade at right now is the bid (to sell) and the ask (to buy).
Spread in percent, depth and market makers
Intermediate
Compare spreads in percent of the price, not in cents: 5 cents is tiny on a $500 stock and large on a $2 one.
The quoted spread applies only to the size shown at each price. A larger order may need to trade at worse levels, effectively widening the spread it pays. See Order Book and market makers, who earn the spread in return for providing quotes.
Spread versus commission-free trading
Advanced
Many brokers advertise zero commissions. That does not make trading free: the spread is still paid, and execution quality — how close to the midpoint your orders fill — varies between brokers and venues.
For funds, ETF issuers publish the median bid-ask spread so investors can compare trading costs.2 For crypto and CFD brokers, some quote a fixed spread and others a variable one; check which applies, especially around news.
Common mistakes
Ignoring the spread because there is “no commission”
A commission-free trade in a wide-spread asset can cost more than a commission plus a tight spread.
Trading with market orders when the spread is wide
Use a limit order to avoid paying the full spread in thin markets.
Trading at the open, close or after hours without checking
Spreads are often widest when liquidity is lowest.
Setting tight stops inside the spread
A stop closer than a normal spread can be triggered by quotes alone, without any real price move.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- The bid is the highest price buyers offer; the ask is the lowest price sellers accept; the gap is the spread.
- Immediate trades buy at the ask and sell at the bid, so every round trip pays the spread.
- Liquid assets in regular hours have tighter spreads; thin markets and extended hours have wider ones.
- Measure spreads in percent of price, and use limit orders when the spread is wide.
Frequently asked questions
Who keeps the spread?
Why is the spread wider at night or before the open?
Is the spread a fee my broker charges?
Further learning
- Market Order
The order type that always pays the full spread.
- Limit Order
How to avoid paying the whole spread.
- Liquidity
The main force behind tight or wide spreads.
- Trading Fees and Commissions
The other costs that add to the spread.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Investor.gov (SEC). Bid Price/Ask Price (glossary) (opens in a new tab) Checked .
- Investor.gov (SEC). Updated Investor Bulletin: Exchange-Traded Funds (ETFs) (opens in a new tab) Checked .
- Investor.gov (SEC). Extended-Hours Trading: Investor Bulletin (opens in a new tab) Checked .
- Investor.gov (SEC). Foreign Currency Exchange (Forex) Trading For Individual Investors (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Spread Costs (opens in a new tab)
- Investopedia: Bid-Ask Spread (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.