What is Bid-Ask Spread?
The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for a security.
Bid-Ask Spread Explained
The spread is a hidden cost of trading. Wide spreads mean higher transaction costs and more slippage. Liquid stocks like AAPL typically have spreads of just a penny or two, while small-cap or volatile stocks can have spreads of several dollars. The spread is how market makers profit from facilitating trades.
Real-World Example
Stock XYZ has a bid of $49.95 and an ask of $50.10. The spread is $0.15. If you buy at the ask and immediately sell at the bid, you'd lose $0.15 per share — about 0.3% — just from the spread.
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