RiskPicksWhat is the Bid-Ask Spread?
The bid is the highest price someone is willing to pay for a stock. The ask (or offer) is the lowest price someone is willing to sell for. The spread is the difference between these two prices.
Why it matters
- Transaction cost: you buy at the ask and sell at the bid, so you start every trade at a small loss equal to the spread
- Liquidity indicator: tight spreads mean high liquidity, wide spreads mean low liquidity
- Volatility signal: spreads widen during high volatility and news events
Active day traders prefer stocks with tight spreads (1-2 cents) to minimize slippage costs.