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Glossary
Trading

Bid-ask spread

The gap between what buyers offer and sellers demand. Your invisible cost.

The bid is the highest price a buyer will pay; the ask is the lowest a seller will accept. The difference is the spread, and it is pocketed by market makers.

In liquid mega-caps the spread is trivial. In small, thinly traded companies it can be several percent, which means you are down that much the instant you buy. It is a cost that never appears on any statement.

Figure

The fee you never see

Ask 100.06, you buy hereBid 100.00, you sell hereThe spread. That is the fee.

You buy at the ask and sell at the bid, so you are down the spread the instant you trade. In an illiquid stock it dwarfs any commission you thought you were avoiding.

Why it matters

It is a real, recurring cost of trading, and it is one of the strongest arguments against trading often.

The mistake everyone makes

Ignoring it in illiquid stocks, where it can dwarf the broker's commission.

Related terms

Liquidity
Whether you can meet your bills right now.
Limit order
An instruction to trade only at a price you specify, or better.

See Bid-ask spread on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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