Bid ask spread
Family VII · Market & styles
Not to be confused with spread, forex spread, spread betting forex.
Bid ask spread is the gap between the best bid and the best ask quoted for an instrument. It is the immediate cost of entering and exiting a position at market prices, because a buyer pays the ask while a seller receives the bid. The spread is usually measured in price units or in pips and varies with liquidity, volatility and venue.
How the spread is quoted and paid
The bid is the highest price a market maker or resting order will pay; the ask is the lowest price at which someone will sell. The spread is the ask minus the bid. A trader who buys at the ask and immediately sells at the bid crosses the spread and pays that difference, before any commission or fee.
Quoted spreads are not fixed. They widen when liquidity is thin, around news releases, and outside the main trading hours of the instrument. Some venues quote a fixed spread, while others pass through the best available prices from a pool of liquidity providers.
Worked example
The is-key row shows the spread cost before commission or slippage. If the position is held and the price moves, the spread is still paid on entry and exit.
What changes the spread
- Liquidity: deeper order books usually mean tighter spreads.
- Volatility: fast price moves can widen the spread as quotes are pulled or repriced.
- Instrument: major currency pairs and large-cap equities typically have tighter spreads than small-cap shares or exotic pairs.
- Venue and account type: spreads vary by broker, execution model and regulator, so the same instrument can show different quotes at different firms.
Often confused with
- spread
- A spread is any difference between two prices, yields or values, such as a credit spread or a futures calendar spread, whereas the bid ask spread is specifically the gap between the best bid and best ask; the visible sign is whether the two figures are a buy and a sell quote for the same instrument at the same moment.
- forex spread
- A forex spread is the bid ask spread in a currency pair, usually quoted in pips, while the general term applies to any asset class; the visible sign is a currency pair symbol such as EUR/USD and a pip-based quote.
- spread betting forex
- Spread betting forex is a derivative product where the client bets on a currency pair's price movement and the provider's spread is embedded in the bet price, whereas the bid ask spread is the underlying market quote itself; the visible sign is a stake size and a profit or loss calculated per point rather than a position size in currency units.