Bid-Ask Spread

The bid-ask spread is a simple but important measure of trading cost and liquidity. It is calculated as the ask price minus the bid price. A narrow spread means buyers and sellers agree closely on price, so you lose little when trading. A wide spread means trading is more expensive.

Spreads depend mainly on how actively a security is traded. Large, popular stocks often have spreads of just one cent. Small, thinly traded stocks, penny stocks and some exchange-traded funds can have much wider spreads, especially at the market open, near the close, or during pre-market and after-hours sessions.

Spreads can also be expressed as a percentage of the price, which makes them easier to compare. A 10-cent spread on a $100 stock is 0.1%, while a 10-cent spread on a $2 stock is 5%.

Example: a stock quoted at $30.00 bid and $30.06 ask has a spread of 6 cents. If you bought at the ask and sold right away at the bid, you would lose 6 cents per share before any fees. Limit orders can help control this cost.