What Is Spread?
The spread is the gap between the highest price someone is willing to pay (bid) and the lowest price someone is willing to accept (ask) for an asset. Tight spreads (a penny or less on liquid stocks) indicate a liquid market; wide spreads indicate thin trading.
Market makers earn the spread by buying at the bid and selling at the ask. Retail traders pay the spread implicitly on every market order — buying at the ask, selling at the bid means you're immediately down by the spread amount.
Spread is the first cost of trading. On liquid mega-caps (AAPL, SPY), it's usually 1 penny on a $200 stock — irrelevant. On illiquid small caps and pre-market sessions, spreads can be 1-2% of price — a major drag on profits. Always check the spread before trading thinly-traded names.
Related terms
- Bid-Ask Spread — The gap between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask).
- Liquidity — The ease with which an asset can be bought or sold without significantly affecting its price.
- Market Maker — Firm that quotes both buy and sell prices, providing liquidity for a profit on the spread.
- Slippage — The difference between the expected fill price of an order and the actual execution price.