spread

Spread

(1) The gap between bid and ask prices of a stock or other security. (2) The simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months. Also known as a straddle. (3) Difference between the price at which an underwriter buys an issue from a firm and the price at which the underwriter sells it to the public. (4) The price an issuer pays above a benchmark fixed-income yield to borrow money.

Spread

The difference between two prices. For example, if one sells an asset for a higher price than one bought it, this profit is called a spread. It may also refer to the difference between the highest bid and the lowest offer for a security. See also: Bid-ask spread, Arbitrage, Spread option.

spread

1. A position taken in two or more options or futures contracts to profit through a change in the relative price relationships. Purchasing an option to expire in October and selling an option on the same asset expiring three months earlier is one example of a spread.

2. The difference in price between two futures contracts that are identical except for delivery date.

3. The difference between the bid and ask prices for a particular security. A large spread often indicates inactive trading of the security. Also called markup. See also effective spread, gross spread, narrow the spread.

4. The difference in yields between two fixed-income securities. See also basis point.

Spread.

In the most general sense, a spread is the difference between two similar measures. In the stock market, for example, the spread is the difference between the highest price bid and the lowest price asked.

With fixed-income securities, such as bonds, the spread is the difference between the yields on securities having the same investment grade but different maturity dates. For example, if the yield on a long-term Treasury bond is 6%, and the yield on a Treasury bill is 4%, the spread is 2%.

The spread may also be the difference in yields on securities that have the same maturity date but are of different investment quality. For example, there is a 3% spread between a high-yield bond paying 9% and a Treasury bond paying 6% that both come due on the same date.

The term also refers to the price difference between two different derivatives of the same class.

For instance, there is typically a spread between the price of the October wheat futures contract and the January wheat futures contract. Part of that spread is known as the cost of carry. However, the spread widens and narrows, caused by changes in the market -- in this case the wheat market.

spread

the difference between the bid (buy) and offer (sell) price of a FINANCIAL SECURITY, FOREIGN CURRENCY or COMMODITY quoted by a MARKET MAKER or dealer. See BID PRICE.

spread

see BID PRICE.

spread

(1) The difference between the asking price and an offer. For example, if the seller was asking $1.5 million but the offer was only $1.2 million, the spread would be $300,000. (2) The difference between the cost of money and the earning rates.

Example: A mortgage banker is able to borrow money at 7 percent interest because of its excellent credit and high net worth. It then loans that money out on moderately risky ventures at 15 percent interest. The spread is 8 percent.