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Glossary

Spread

A spread is the difference between two related prices, rates or yields, such as the gap between what buyers pay and what sellers accept for a security.

What Is a Spread?

In finance, a spread is the difference between two related prices, rates or yields. The word is used in several ways, but the most common meaning for individual investors is the bid-ask spread, which is the gap between the highest price a buyer is willing to pay for a security (the bid) and the lowest price a seller is willing to accept (the ask). Spreads also describe the gap between the yield of one bond and another, and the combined position created by buying and selling related options.

How the Bid-Ask Spread Works

Most actively traded stocks display two quoted prices. Trades happen when a buyer and seller agree, often through a market maker who stands ready to buy and sell. For example, if a hypothetical stock has a bid of 49.95 and an ask of 50.00, its spread is 0.05 per share.

Buying at the ask and later selling at the bid means the spread is an immediate cost of that round trip. Spreads tend to be narrow for large, heavily traded stocks and wider for thinly traded ones. They often widen during periods of market stress or outside regular trading hours.

The spread can also be expressed as a percentage of the price:

Spread percentage = (Ask − Bid) ÷ Ask × 100

Using the example above, that is (50.00 − 49.95) ÷ 50.00 × 100, or 0.1 percent.

Spreads Beyond Stocks

  • Yield spreads compare the yields of two bonds. A credit spread is the extra yield a corporate bond pays above a government bond of similar maturity, which reflects the added risk of default.
  • Options spreads involve holding several related options at once. A vertical spread combines options with the same expiration date but different strike prices.

Why It Matters to Investors

Spreads are a cost of trading, alongside commissions and fees, and they are easy to overlook because they are not listed as a separate charge. Investors can help limit this cost by using a limit order, which sets the most they will pay or the least they will accept, rather than accepting the current market price. Understanding spreads also helps in reading bond yields and comparing the relative risk of different debt.

Updated October 21, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Bid-Ask Spread

The bid-ask spread is the difference between the highest price a buyer is willing to pay for a security and the lowest price a seller is willing to accept, at a given moment.

Yield

Yield is the annual income an investment pays out, such as interest or dividends, expressed as a percentage of its current market price or face value.

Market Maker

A market maker is a firm or individual that continuously quotes buy and sell prices for a security, standing ready to trade and helping keep markets liquid and orderly.

Credit Spread

A credit spread is an options strategy that involves selling one option and buying a cheaper one on the same underlying, receiving a net credit upfront; the term also describes bond yield gaps.

Vertical Spread

A vertical spread is an options strategy that pairs a bought and a sold option of the same type, with the same expiration but different strike prices, capping both potential gain and loss.

Limit Order

A limit order is an instruction to buy or sell a security only at a specified price or better, giving the investor control over the execution price but no guarantee the order will fill.

Bid Price

A bid price is the highest price a buyer is currently willing to pay for a security, and it is the price a seller can usually receive for an immediate sale.

Ask Price

The ask price is the lowest price a seller is currently willing to accept for a security, shown alongside the bid price, which is the highest price a buyer is offering.