Bid-Ask Spread

bid-ask spread

See spread.

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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.

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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 Exchange—NYSE