Angie · learn

Bid-ask spread

The gap between the highest price a buyer will pay and the lowest a seller will accept. It is the cost of trading, and you pay half of it on the way in and half on the way out.

Updated 2026-09-05

The bid is the highest price anyone is currently willing to pay. The ask is the lowest anyone is willing to sell at. The gap between them is the spread, and it is the real cost of trading.

You cross it every time you trade with a market order, which means you pay roughly half on entry and half on exit. On a liquid mega-cap that is a rounding error. On a thin small-cap it can be one or two percent of the position, which is a meaningful headwind that no strategy backtest will show you unless it was modelled explicitly.

This is one of the main reasons a backtest flatters a high-frequency strategy. Doubling the number of trades doubles the spread paid, and a strategy with a genuine but small edge can be entirely consumed by it.

See also

  • Market maker — A firm that continuously quotes both a buy and a sell price, so there is always someone on the other side. It earns the spread for taking that risk.
  • Liquidity — How easily something can be sold near its quoted price. A liquid stock absorbs your order; an illiquid one moves against you as you fill it.
  • Market order — An instruction to trade immediately at whatever price is available. It guarantees execution and guarantees nothing about the price you get.

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Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.

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