Bid-Ask Spread

The difference between the highest price a buyer will pay and the lowest price a seller will accept.

What Is the Bid-Ask Spread?

The bid-ask spread is the gap between the highest price someone is willing to pay for a stock (the bid) and the lowest price someone is willing to sell it for (the ask). It represents the cost of immediate execution.

Spread = Ask Price - Bid Price

What the Spread Tells You

A tight spread (e.g., $0.01) indicates high liquidity — lots of buyers and sellers competing. A wide spread (e.g., $0.50) indicates low liquidity — fewer participants and more risk. Major stocks like Apple might have a $0.01 spread, while a small-cap stock might have a $0.25 spread.

Spread and Earnings

Spreads often widen dramatically right before and after earnings announcements. Market makers increase the spread to compensate for the increased risk of holding inventory during a volatile event. This is an important hidden cost that traders need to account for.