The bid-ask spread is the difference between the highest price a buyer is willing to pay for an asset (the bid) and the lowest price at which a seller is willing to sell (the ask). It serves as a measure of the asset’s liquidity and is a cost that traders have to consider when entering and exiting positions.
Example: If the bid price for a stock is $50 and the ask price is $51, the bid-ask spread is $1.
Usage: The bid-ask spread is important for traders and investors as a narrower spread generally indicates higher liquidity and lower transaction costs, while a wider spread can signify the opposite.
See also
Liquidity
Volume
Market order
Limit order