In stock-market trading, what does the bid-ask spread measure?
Answer
The difference between bid and ask prices
In stock-market trading, the bid-ask spread measures the difference between the highest price a buyer offers and the lowest price a seller accepts.
The bid is the strongest currently displayed buying price, while the ask, also called the offer, is the lowest displayed selling price. A market order to buy generally executes at or near the ask, and a market order to sell generally executes at or near the bid. The gap between them is the spread.
Spreads vary with liquidity, trading activity, volatility, and the security’s price. Highly traded shares often have very narrow spreads because many buyers and sellers compete. Less liquid securities can have wider spreads, increasing the implicit cost of an immediate trade. The spread is not the same as a broker’s commission, although both affect trading costs.
Quoted prices can change many times per second. The displayed spread may also change before an order executes, particularly during fast markets or around important company announcements.