What it is
The bid price is the maximum price a buyer is willing to pay for a security, while the ask price (or offer price) is the minimum price a seller is willing to accept. The difference between these two prices is the bid-ask spread. This spread represents the market maker's profit margin for facilitating trades and is also a measure of a security's liquidity. Narrower spreads typically indicate higher liquidity.
The bid-ask spread is a fundamental concept in trading and is frequently mentioned when discussing transaction costs, market liquidity, and trade execution quality. News reports might analyze how spreads widen during volatile market conditions or for less liquid securities, impacting investor costs. Understanding the spread helps retail investors evaluate the true cost of a trade beyond just commissions, especially for frequent traders.
Why it matters
The bid-ask spread is a direct cost of trading, impacting your entry and exit prices. A wider spread means higher transaction costs.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice