Understanding the Bid-Ask Spread

The bid-ask spread is the gap between the highest price a buyer is currently willing to pay for a share (the bid) and the lowest price a seller is currently willing to accept (the ask, or offer).

This spread exists because buyers and sellers rarely agree on price instantly. Market makers and other participants who provide liquidity typically earn a small profit from this gap, in exchange for being ready to trade at any moment.

Why the Spread Matters

• A narrow spread generally indicates a more liquid, actively traded stock, where buying and selling tends to be easier and less costly.
• A wide spread often indicates lower liquidity, meaning fewer participants are actively trading, which can make entering or exiting a position more expensive.
• The spread is itself a cost of trading, separate from any commission a broker might charge.