What Is the Bid-Ask Spread?
The spread is the hidden cost of every single trade you make. Understanding it is essential for calculating your real trading costs and choosing the right markets.
Basics · June 25, 2026 · 4 min read
The bid-ask spread is the difference between the highest price a buyer is willing to pay (the bid) and the lowest price a seller is willing to accept (the ask). If the bid for a stock is $49.98 and the ask is $50.02, the spread is $0.04. When you buy at the market price, you pay the ask ($50.02). When you sell at the market price, you receive the bid ($49.98). The spread means you immediately start any trade at a small loss — you have to overcome the spread just to break even.
Spread as a Cost of Trading
The spread is a direct cost of trading, even if your broker charges no commission. A 2-cent spread on a $50 stock represents 0.04% per trade — or 0.08% round trip (buy and sell). On 100 trades per month, that's 8% of your capital consumed by spreads alone, before any actual trading losses. This is why scalping strategies targeting 5–10 pip moves in forex with a 2–3 pip spread have such a high breakeven requirement — the spread consumes 20–60% of the target before the market even moves.
What Determines Spread Size
Spreads are determined by liquidity. Highly liquid markets (EUR/USD forex, SPY, Apple) have spreads of 1–2 cents or less. Thinly traded markets (small-cap stocks, exotic forex pairs, obscure crypto) can have spreads of 1–5% of the asset price. Spreads also widen during market stress, low liquidity periods (pre-market, after-hours, around major news releases), and overnight gaps. When you see a stock quoted at $10.00 bid / $10.50 ask — a 5% spread — you need a 5% move in your favor just to break even. Always check the spread before trading any instrument.
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