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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 price. Smaller is better for you.
Why It Matters
The spread is a hidden cost you pay every time you trade. Buy at $100.02 (ask), sell immediately at $99.98 (bid) = you've lost $0.04 per share before the stock even moves. For Apple with a $0.01 spread, this is negligible. For a thinly traded stock with a $0.50 spread, you're down 0.5% the moment you buy.
Key Points
- Market makers profit from the spread - they buy at bid and sell at ask
- Spreads widen during volatility, after hours, and for low-volume stocks
- A stock with consistent tight spreads is safer to trade frequently; wide spreads favor buy-and-hold
Related Terms
Common Questions
The difference between the bid and ask price. Smaller is better for you. The spread is a hidden cost you pay every time you trade. Buy at $100.
The spread is a hidden cost you pay every time you trade. Buy at $100.02 (ask), sell immediately at $99.98 (bid) = you've lost $0.04 per share before the stock even moves. For Apple with a $0.01 spread, this is negligible. For a thinly traded stock with a $0.50 spread, you're down 0.5% the moment you buy.
Market makers profit from the spread - they buy at bid and sell at ask
Spreads widen during volatility, after hours, and for low-volume stocks
A stock with consistent tight spreads is safer to trade frequently; wide spreads favor buy-and-hold