What is the bid-ask spread and why does it matter?
The spread is the gap between the price you can buy at (the ask) and the price you can sell at (the bid) at the same moment. You always buy at the higher price and sell at the lower one, so the spread acts as a small built-in cost on every trade, even when no commission appears anywhere.
Bid and ask: the two prices that always exist
In a real market there is never just one price, there are two. The bid is the best price someone is currently willing to pay to buy from you. The ask (or offer) is the best price someone is currently willing to sell to you at. The ask always sits slightly above the bid, and the gap between them is the spread.
When an app shows you a single price, it is usually the midpoint or the last traded price. The moment you actually trade, you meet the two real ones: you buy at the ask, slightly more expensive, and you sell at the bid, slightly cheaper.
The spread as an implicit cost
Because you always buy at the higher price and sell at the lower one, every trade starts with a small handicap equal to the spread. If you bought and instantly sold with the market not moving at all, you would lose exactly the spread. That is why it is called an implicit or hidden cost: it never shows up as a fee, but you pay it every time.
This is why tight spreads matter. Heavily traded instruments, like large-cap stocks or major currency pairs, have tiny spreads because thousands of buyers and sellers are present at any moment. Thinly traded instruments have wide spreads, and each transaction costs more. The more frequently you trade, the more this compounds.
- Bid: the price you sell at.
- Ask: the price you buy at.
- Spread: the gap between them, a built-in cost on every trade.
- A tight spread signals a liquid market and cheaper transactions.
Worked example: what the spread costs in dollars
Take a stock with a bid of $49.95 and an ask of $50.05. The spread is 10 cents, roughly 0.2% of the price. You buy 100 shares at the ask and pay $5,005. If you changed your mind that same second and sold, you would receive the bid: $4,995. You are already down $10 without price having moved at all.
That means the stock has to rise by the spread just for you to break even. On an instrument with a 0.02% spread that hurdle is negligible. On an exotic instrument with a 1% spread you start every trade a full percent behind, and that adds up quickly if you trade often.
When spreads widen (and why you should check)
The spread is not fixed. It widens when uncertainty rises or liquidity dries up: around major news and economic releases, in the first and last minutes of a trading session, overnight and on weekends in crypto, and generally whenever market participants step back. In those moments, a spread that was 0.05% can temporarily blow out to ten times that.
The practical takeaway for beginners: the same trade costs a different amount depending on when you place it. In Tradebook you learn to check the spread before every entry, through scenarios that show what a liquid market and a thin one look like in practice.
Frequently asked questions
Why is the spread a cost if it is not a commission?
Because you always buy at the ask and sell at the bid, meaning always at the worse of the two prices for you. If you opened and closed a position with the market perfectly still, you would lose exactly the spread. It is a cost embedded in the price rather than an item on a statement.
What counts as a good spread?
It depends on the instrument. Large-cap stocks and major currency pairs usually trade with spreads of a few hundredths of a percent. As a beginner, the useful measure is relative: compare an instrument's spread to similar ones and look at it as a percentage of price, not as an absolute number.
When do spreads widen dangerously?
Around major news releases, during low-liquidity hours such as the market open and close or weekends in crypto, and in instruments with few participants. The two prices drift apart, transaction costs spike, and executions become less predictable. Many traders simply avoid entering positions in those windows.
Does the spread go to the broker?
Often part of it, yes. Some brokers charge no commission but add their own markup on top of the market spread, which is how they get paid. That is why comparing spreads across platforms matters: commission-free does not necessarily mean cost-free, it can just mean the cost moved into the spread.
Tradebook teaches general, publicly-available trading concepts for educational purposes only. It is not financial, investment or trading advice, is not a broker, and does not place trades or handle real money. Trading involves risk.