Quick answer
The bid-ask spread is the difference between the bid, the highest price a buyer will pay, and the ask, the lowest price a seller will accept [1]. A narrow spread usually signals good liquidity [2].
#What are the bid and the ask?
Investor.gov defines the bid as the highest price a buyer will pay for a specified number of shares at a given time, and the ask as the lowest price a seller will accept [1]. The ask is always above the bid. The SEC explains that market makers, firms that stand ready to buy and sell, earn money by capturing the difference [3].
#How much does the spread cost you?
If you buy at the ask and immediately sell at the bid, you lose the spread on every share. In practice the cost is spread across your purchase and your sale, but it is there either way. FINRA notes that wider spreads reduce returns by raising what you pay or lowering what you receive [2].
Worked example
Narrow spread versus wide spread
You buy 200 shares and sell them right back, with no price change and no commission.
- Stock A: bid $49.95, ask $50.05
- Spread $0.10 (0.2% of the midpoint)
- Round-trip cost for 200 shares (200 × $0.10)
- $20
- Stock B: bid $9.80, ask $10.20
- Spread $0.40 (4.0% of the midpoint)
- Round-trip cost for 200 shares (200 × $0.40)
- $80
Stock B is cheaper per share but four times as expensive to trade in dollars, and twenty times as expensive as a percentage.
Hypothetical quotes for illustration.
#When are spreads wider?
Spreads tend to widen when fewer people are trading. The SEC's bulletin on extended-hours trading says reduced trading interest generally results in wider spreads between bid and ask prices, or no quotes at all [4]. FINRA lists small-cap and micro-cap stocks, low-priced and low-volume securities, and some individual bonds among less liquid investments [2].
Related terms
Frequently asked questions
Do ETFs have a bid-ask spread?
Yes. ETF shares trade on exchanges at market prices [5], so they have a bid and an ask like stocks. This is separate from any premium or discount to the fund's NAV.
Is the spread the same as a commission?
No. A commission is a fee your broker charges. The spread is built into the prices you trade at, so it applies even when commissions are zero.
Sources
Grade A = primary source (regulator, government agency, official rulebook or the index provider's own documents). Numbers in brackets in the text point here.
- U.S. SEC — Investor.gov. Bid Price (glossary) (2026). Accessed 2026-10-03.A
- FINRA. Understanding Market Liquidity and Your Investments (2026). Accessed 2026-10-03.A
- U.S. Securities and Exchange Commission. Spread (2002). Accessed 2026-10-03.A
- U.S. SEC — Investor.gov. Extended-Hours Trading — Investor Bulletin (2026). Accessed 2026-10-03.A
- U.S. SEC — Investor.gov. Exchange-Traded Funds (ETFs) (2026). Accessed 2026-10-03.A
This page is general education, not personal financial, tax or legal advice. Figures in worked examples are hypothetical and calculated before taxes and fees unless stated. Rules and limits change; check the linked primary sources for the current version. How we check every page.
