Glossary / Market structure

Bid-ask spread

Also called: spread

The bid-ask spread is the difference between the highest price a buyer is currently willing to pay and the lowest price a seller is currently willing to accept. It is the immediate cost of transacting rather than waiting.

How it is measured

How is bid-ask spread measured?

Subtract the best bid from the best offer at a moment in time. Quoting it as a percentage of the midpoint makes it comparable between securities at different price levels. It is not a fixed attribute — it widens around news, at the open and close, and in thinly traded securities, and it is quoted for a specific size, so a larger order can transact outside the displayed quote.

Why it matters

Why does bid-ask spread matter to a swing trader?

The spread is a transaction cost that is paid on entry and again on exit, and it is invisible in any performance figure computed from closing prices. On a multi-day holding period in a liquid security it is usually a rounding error; in a thin one, or at high turnover, it accumulates into a material drag that back-of-the-envelope arithmetic on closes will not show.

Related

See this in the product

What Tapeline does not model · Full methodology

Related terms

Average dollar volume
Average dollar volume is the value traded in a typical session — shares traded multiplied by price — averaged over a recent window.
Volume
Volume is the number of shares that changed hands over a period.
Float
Float is the number of a company's shares that are actually available to trade in the open market.
Volatility
Volatility measures how much a security's price varies around its own average over a period.

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General information about market vocabulary, written to be descriptive rather than prescriptive. Not investment advice — see the risk disclosure.