What Is a Bid-Ask Spread?

Introduction

When you buy or sell a stock, you might notice there are actually two prices listed. One is what buyers are willing to pay, and the other is what sellers are willing to accept. The difference between them is called the bid-ask spread.

Bid and Ask Explained

The bid is the highest price a buyer is currently willing to pay for a stock. The ask is the lowest price a seller is willing to accept. If a stock's bid is $50.00 and its ask is $50.05, the spread is 5 cents.

Why the Spread Matters

When you buy at the market price, you usually pay the ask. When you sell, you usually receive the bid. The spread is a hidden cost of trading. For popular stocks like Apple, spreads are often just a penny. For less frequently traded stocks, spreads can be much wider.

How to Reduce the Impact

Trading popular, high-volume stocks and ETFs usually means tighter spreads. Using limit orders lets you set the price you are willing to pay or accept. Avoid trading thinly traded stocks during times of low volume, like right after the market opens or in after-hours trading.

Conclusion

The bid-ask spread is a small detail with real costs. Understanding it helps you trade smarter and keep more of your money!