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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
The difference between the bid and ask prices. Your cost to trade.
Why It Matters
The bid-ask spread is a hidden cost of trading. A $0.50 spread on a $3 option means you lose 17% immediately just to enter and exit. On liquid options (SPY, QQQ), spreads might be $0.01. On illiquid names, spreads can be $1+ - making profitable trading nearly impossible.
Key Points
- Tight spreads (< $0.05) on popular stocks; wide spreads ($0.50+) on illiquid options
- Spreads widen during volatility and narrow during calm markets
- Always use limit orders mid-spread - never pay the full ask if you can wait
Related Terms
Common Questions
The difference between the bid and ask prices. Your cost to trade. The bid-ask spread is a hidden cost of trading. A $0.
The bid-ask spread is a hidden cost of trading. A $0.50 spread on a $3 option means you lose 17% immediately just to enter and exit. On liquid options (SPY, QQQ), spreads might be $0.01. On illiquid names, spreads can be $1+ - making profitable trading nearly impossible.
Tight spreads (< $0.05) on popular stocks; wide spreads ($0.50+) on illiquid options
Spreads widen during volatility and narrow during calm markets
Always use limit orders mid-spread - never pay the full ask if you can wait