Learn about the hidden cost of trading and how spreads impact every transaction
In financial markets, the "spread" refers to the difference between the highest price a buyer is willing to pay for an asset (the "bid") and the lowest price a seller is willing to accept (the "ask"). The bid-ask spread represents an implicit cost of trading that every investor should understand.
The highest price that buyers are willing to pay for an asset right now. This is the price you receive when selling.
The lowest price that sellers are willing to accept for an asset right now. This is the price you pay when buying.
The spread represents an immediate cost every time you trade. Market makers earn this difference for providing liquidity.
When you buy, you're instantly "down" by the spread amount. Your position must move favorably to overcome this cost.
Tighter spreads indicate higher liquidity. Wider spreads suggest lower liquidity and higher trading costs.