Dictionary / Trading and orders
What Is the Bid-Ask Spread?
The bid is the highest price a buyer will pay. The ask is the lowest price a seller will accept. The gap between them is the bid-ask spread.
A simple example
A stock shows bid $49.98 and ask $50.02. If you buy right away, you pay $50.02. If you sell right away, you get $49.98. The 4-cent gap is the spread. It is a hidden cost of trading.
Why some spreads are wide
Busy stocks like Apple have tiny spreads, often a penny. Small, rarely traded stocks can have wide spreads, because few buyers and sellers are around. Spreads also widen outside normal hours. See liquidity.
How to reduce the cost
Trade busy stocks and ETFs, trade during normal market hours, and use a limit order when spreads are wide.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
LiquidityHow easily you can buy or sell without moving the price.
Market vs limit orderBuy now at any price, or only at your price.
After-hours tradingTrading before or after normal market hours.
Penny stocksVery cheap, very risky shares of tiny companies.
Day tradingBuying and selling within the same day.
ETFOne fund that holds many stocks at once.