In plain words: The mathematical difference between the price at which someone is willing to buy an asset (bid) and sell (ask).
The spread is the gap between the highest price a buyer will pay (the bid) and the lowest price a seller will accept (the ask). It exists in almost every market and quietly affects what an investor really pays or receives when trading any asset.
How does the spread work?
At any moment, an asset has two quoted prices: a slightly lower bid and a slightly higher ask. To buy immediately you generally pay the ask; to sell immediately you receive the bid. That small difference is a real cost, even when no separate fee is shown.
Why does the spread matter to investors?
Wider spreads usually appear in less actively traded markets, while highly liquid assets tend to have narrow ones. For long-term investors who trade rarely, the spread matters little; for frequent traders it adds up. It is one reason patient, low-turnover investing keeps costs down.
Key takeaways
- The spread is the gap between the bid (buy) and ask (sell) prices of an asset.
- Crossing it is a real, often hidden, cost of every trade.
- Liquid assets tend to have narrow spreads; trading less often reduces the cost's impact.