What Is a Bid-Ask Spread?
A bid-ask spread is the gap between the best bid price and the best ask price quoted for a stock, bond, currency or other tradable asset. The bid is the highest price a buyer is currently offering to pay. The ask, sometimes called the offer, is the lowest price a seller is currently willing to accept. Because buyers generally prefer to pay less and sellers prefer to receive more, the ask is normally somewhat higher than the bid.
How It Works
Trades occur where buyers and sellers meet. An investor who wants to buy immediately usually pays the ask, while one who wants to sell immediately usually receives the bid. The spread is therefore a built-in cost of trading right away. It is also why a newly purchased security often shows a small paper loss at first if it is valued at its bid.
Spreads are largely shaped by supply and demand within the order book and by market makers, firms that stand ready to buy and sell and earn the spread for providing that service. The gap tends to be wider for securities that trade infrequently, when prices are volatile, or when the market feels riskier. It tends to be narrower for heavily traded securities with many competing orders.
The spread can be calculated with a simple formula:
Spread = Ask Price − Bid Price
Many investors also express the spread as a percentage of the price. For a hypothetical stock quoted at a bid of 50.00 and an ask of 50.05, the spread is 0.05, or about 0.1 percent of the 50.00 price.
Why It Matters to Investors
For large, actively traded companies, the spread is often very small. For thinly traded securities, it can be much wider, which raises the cost of buying and selling. Spreads matter most for investors who trade often, since the cost is paid on each round trip. Some investors use a limit order, which sets the maximum price they will pay or the minimum they will accept, rather than a market order that fills at the best available price. Spreads are one part of transaction costs, alongside commissions and slippage.
Updated October 15, 2026. For general education only; not financial, tax or legal advice.