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Bid-Ask Spread

   Also found in: Wikipedia 0.04 sec.
bid-ask spread
See spread.

Bid-Ask Spread
On an exchange, the difference between the highest price a buyer of a security or other asset is willing to pay and the lowest price a seller is willing to offer. Generally speaking, the more liquid an asset is, the lower the bid-ask spread is. As a result, currency, which is considered the most liquid asset, has an extremely low bid-ask spread.

Bid-Ask Spread

What Does Bid-Ask Spread Mean?

The amount by which the ask price exceeds the bid price. Essentially, it is the difference between the highest price a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it.

Investopedia explains Bid-Ask Spread

As an example, if the bid price is $20 and the ask price is $21, the bid-ask spread is $1. The size of the spread from one asset to another will vary with the liquidity of the asset. For example, currency is considered the most liquid asset in the world; thus, currency spreads are very narrow (one-hundredth of a percent). In contrast, less liquid assets such as a small-cap stock will have wider spreads, sometimes as high as 1 to 2% of the asset's value.

Related Terms:
Ask
Bid
Market Maker
Pink Sheets
New York Stock ExchangeNYSE



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? Mentioned in ? References in periodicals archive
 
McInish and Wood (1992) find that as the trading volume of a stock increases, the bid-ask spread of this stock declines.
``We strongly believe that maintaining our Nasdaq SmallCap Market listing is in the best interest of all shareholders as it provides greater share liquidity by the way of potentially higher trading volumes, lower bid-ask spreads, and a higher number of market makers,'' Ghauri said in a statement.
debt securities, we use half the bid-ask spread and rely on estimates of spreads provided by market participants of 5 basis points (BP) on U.
 
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