What Is the Bid-Ask Spread? (Day Trading Glossary)

The bid-ask spread is the difference between the highest price a buyer will pay and the lowest price a seller will accept for a stock. Every stock quote actually has two prices, and the gap between them is the spread.

That small gap is one of the most overlooked costs of trading, and it tells you a lot about how easy a stock is to trade.

Bid, ask, and the spread

The bid is the highest price a buyer is currently offering to pay. The ask, also called the offer, is the lowest price a seller will take. The spread is just the ask minus the bid.

The bid is almost always a little below the ask, because buyers want to pay less and sellers want to get more. A market maker sits in the middle, quoting both prices and pocketing that difference, which you can read more about in what a market maker does.

Why the spread matters

The spread affects you in two real ways.

First, it's a hidden cost. If you buy a stock with a market order, you pay the higher ask. If you turn around and sell it right away, you get the lower bid. That round trip costs you the spread before the price has even moved. On a penny-wide spread that's nothing, but on a wide one it adds up fast.

Second, the spread is a quick read on liquidity. A narrow, tight spread means lots of buyers and sellers and easy trading. A wide spread means thin, low-volume trading or high volatility, and it makes getting in and out more expensive.

What makes a spread wide or narrow

Big, heavily traded stocks usually have spreads of a cent or less, because there are always plenty of orders on both sides. Thin stocks with low volume, and especially low-float names, can have spreads of several cents or more. Fast, volatile conditions widen spreads too, since sellers demand more of a cushion when price is jumping around.

How I handle the spread

For the small-caps I trade, the spread is something I respect, because on a thin stock it can be wide enough to hurt. Paying the ask and then having to sell back near the bid can eat a chunk of a small gain before I've done anything wrong.

So instead of hitting the market and accepting whatever spread is there, I lean on limit orders to control what I pay. A wide spread also warns me the stock is thin and can move fast, so I size smaller and keep my risk tight. Reading the spread is part of reading the stock, which sits underneath how I trade.

Frequently asked questions

Is it better to buy at the bid or the ask?

When you buy with a market order, you generally pay the ask, since that's the lowest price a seller is offering right now. If you want to pay less, you can place a buy limit order at the bid or between the bid and ask, but then you wait and might not get filled. It's the usual trade-off between paying up to get in and holding out for a better price.

What is a good bid-ask spread?

Tighter is better for you as a trader. On a large, liquid stock the spread is often a cent or less, which is about as good as it gets. A spread of several cents or a noticeable percentage of the price signals a thinner, more expensive stock to trade. There's no fixed number, so judge the spread relative to the stock's price and volume.

Why is a bid-ask spread so high?

A wide spread usually comes down to low liquidity. If few shares are trading, buyers and sellers are further apart, so the gap grows. High volatility widens it too, and so does a small float.

This content is for educational purposes only and is not financial advice. Trading involves significant risk and may not be suitable for all traders.