Bid, ask and the spread
The two-sided market and the first cost every active trader meets.
There is rarely one executable price. Buyers advertise bids; sellers advertise offers. The space between them is the spread, and crossing it creates an immediate cost.
Bid and ask
The bid is the highest displayed price a buyer currently offers. The ask is the lowest displayed price a seller currently accepts. A market sell generally interacts with bids; a market buy interacts with asks.
Why spreads change
Spreads tend to widen when uncertainty rises, liquidity falls or the venue is closed while a related market moves. Thin instruments and large orders can face wider effective spreads.
Quoted versus effective cost
The displayed spread is only part of execution cost. Market impact, slippage, commission, financing and currency conversion can matter more, particularly for frequent trading.
The lesson in three lines.
- 1Price is two-sided.
- 2The spread is an immediate trading cost.
- 3Liquidity conditions can change the price you actually receive.