The bid-ask spread is the gap between what buyers want to pay (bid) and what sellers want to receive (ask). It’s the hidden cost you pay when entering or exiting a trade.
Think of it like buying and selling in a game marketplace. If buyers offer 90 gold and sellers want 100, the spread is 10. The tighter the gap, the smoother the trade.
The spread directly affects your execution price. A wide spread means you lose more value the moment you trade, especially if you use market orders.
Spreads also signal liquidity. Tight spreads usually mean many buyers and sellers are active. Wide spreads often show low activity, higher volatility, or uncertainty around the asset.
You can interpret the spread in a few simple ways:
- Narrow spread: high liquidity, lower trading cost
- Wide spread: low liquidity, higher execution risk
- Spreads widen during fast markets, news events, or off-hours
- Using limit orders can help control spread-related costs
The spread can change quickly depending on market conditions and trading volume.
A common mistake is ignoring the spread when trading less liquid assets. This can quietly eat into returns, even if the price move looks right.
Another error is always using market orders. In wide-spread situations, this often leads to poor fills and unnecessary losses.
On Stoxcraft, bid-ask spread context appears on stock pages and in market insights where liquidity and trading conditions matter.
It’s also referenced in portfolio and risk-related explanations to help you understand execution quality, liquidity, and how market structure affects real-world trading outcomes.
