Skip to main content

Bid-Ask Spread

The difference between the ask price and the bid price for a marketable item is known as the bid-ask spread. The difference between the highest price a buyer is ready to pay for an item and the lowest price a seller is willing to take is known as the bid-ask spread. The person who wants to sell will get the bid price, and the person who wants to buy will pay the ask price.


Understanding Bid and Ask
Although it is fundamental to any transaction, many individual investors fail to fully understand the importance of the bid and ask. When looking at the current price of any trading securities,  keep in mind you are seeing the closing price of that specific time frame. To have more information we need to look at the bid price and the ask price.  In the context of a security market, bid indicates demand and ask indicates supply.
The bid price tells us how much buyers are willing to pay for a specific equity; the ask price tells us how much the sellers are willing to sell for a specific equity.
For example, if the current quotation of XYZ stock includes a bid price of $35.00 and an ask price of $35.30, a trader who would like to buy the stock, would have pay the ask price of $35.30. If a trader wanted to unload the shares, he or she would have to sell them for $35.00.


Bid-Ask Spread Explained
The term "bid-ask spread" is used to describe the gap between the two prices. The market maker profit off of the difference between the bid and the ask price. When trading any type of equities, it is vital to take this into account because it represents a hidden cost.
When trading any type of equities, it is vital to take this into account because it represents a hidden cost. Using the previous example, if you buy 100 shares of XYZ stock at the ask price of $35.30 and immediately sell them at the bid price of $35.00, the transaction will cost you $30. ($35.30 - $35.00) x 100 = $30 
Even thou the stock price did not move, you have lost $30. The smaller is the spread, the cheaper is the cost for the transaction.
Generally the spread narrows when trading volume is large, which means that the security is liquid (plenty of buyers and sellers). Conversely, the spread will widen if trading volume is low for the security. This low liquidity is often time the result of fewer buyers and sellers.

Popular posts from this blog

What to Do When Market Is in the Toilet? Don't Trade OR Day Trade!

As we all know, 2022 has been a painful year, and it continues to be so. What works during a bearish market are a few strategies: shorts, inverse ETFs, holding cash positions and day trading. Today we take a look at ATXI and see how we day traded it. Watch this video to get the technicals. Good trading! Trading Risk Disclaimer All the information shared is provided for educational purposes only. Any trades placed upon reliance of SharperTrades, LLC are taken at your own risk for your own account. Past performance is no guarantee. While there is great potential for reward trading stocks, cryptos, commodities, options, forex and other trading securities, there is also substantial risk of loss. All trading operations involve high risks of losing your entire investment. You must therefore decide your own suitability to trade. Trading results can never be guaranteed. SharperTrades, LLC is not registered as an investment adviser with any federal or state regulatory agency. This is

Kal's Option Trade of the Week - UNG Short Call Vertical

This week we are going in with the Short Call Vertical strategy on UNG (Natural Gas ETF). The reason for choosing this option trade is that the Natural Gas market has been volatile and on a tear for the last few weeks. As contrarians, we will bet it slows down and turns around from here. Purely my assumption, but you can only trade on your own assumptions. :) Watch this video to get the trade details. Hope you enjoy it! Kal Trading Risk Disclaimer All the information shared is provided for educational purposes only. Any trades placed upon reliance of SharperTrades, LLC are taken at your own risk for your own account. Past performance is no guarantee. While there is great potential for reward trading stocks, cryptos, commodities, options, forex and other trading securities, there is also substantial risk of loss. All trading operations involve high risks of losing your entire investment. You must therefore decide your own suitability to trade. Trading results can neve

Bitcoin and Ethereum Funds: Two Unusual Activities That Could Result in a Big Move

Today we take a look at the technicals for Bitcoin and Ethereum. The crypto market has been quiet for several months.   On Friday we detected unusual dark pool activities (large block orders) in the Bitcoin Trust Fund and Ethereum Trust Fund, GBTC and ETHE respectively. When smart money know something, they place large orders in the dark pool exchanges, away from the public eye. By doing so, they are positioning themselves ahead of the crowds, in order to benefit from move that will follow, once the news or report is made public. However, dark pool activities   do not   tell us the direction of the next move. It only tell us that a large order(s) has been placed. Only a breakout (bullish) about a resistance level, or a breakdown (bearish) below a support level can confirm the direction of the next move. So, what can we expect next? Watch this video to find and to get the technical insights.  Good trading! Trading Risk Disclaimer All the information shared is provided for educational

10+ Stocks To Watch Moving Forward. Here Are the Technicals

Today we focus a several tickers including three swing trades that we initiated just a few days ago: ACCD, RBLX and TDOC. Create a watch list, watch this video to get the technicals, and manage your trades correctly. Featuring ACCD AGEN BBBY CHWY GROV LABU LCID LI MRNA MVIS PINS RAD RBLX RIVN SPCE TDOC Good trading! Trading Risk Disclaimer All the information shared is provided for educational purposes only. Any trades placed upon reliance of SharperTrades, LLC are taken at your own risk for your own account. Past performance is no guarantee. While there is great potential for reward trading stocks, cryptos, commodities, options, forex and other trading securities, there is also substantial risk of loss. All trading operations involve high risks of losing your entire investment. You must therefore decide your own suitability to trade. Trading results can never be guaranteed. SharperTrades, LLC is not registered as an investment adviser with any federal or state regulatory age