Bid-Ask Spread

Every quoted market has two prices, not one. The bid is what the market will pay you if you sell right now. The ask (sometimes called the offer) is what the market charges you if you buy right now. If a currency pair shows a bid of 1.0800 and an ask of 1.0803, the spread is 0.0003 — often expressed as "3 pips" in foreign exchange markets. That tiny gap is the cost of getting an immediate fill rather than waiting for a better price.

The spread is effectively a fee paid to market makers — firms or individuals who continuously post both bid and ask prices and profit from the difference. In highly liquid markets like major currency pairs or large-cap stocks, spreads are razor thin because competition among market makers is fierce. In thinly traded markets — small altcoins, exotic bonds, illiquid commodities — spreads can be wide enough to represent a meaningful percentage of the asset's price.

Suppose a hypothetical stock has a bid of $99.95 and an ask of $100.05. A trader who buys at the ask and immediately sells at the bid loses $0.10 per share before any other costs. Scale that to thousands of shares or dozens of trades per day and the spread becomes a significant drag. This is why liquidity and spread width are so closely tracked together.

A widening spread is often one of the first visible signs of stress in a market. When uncertainty spikes, market makers widen their quotes to protect themselves from being caught on the wrong side of a fast-moving price. Traders typically watch spread changes on the live quote screen as an early warning of deteriorating conditions.