Bid and Ask

The bid is the highest price buyers will pay; the ask is the lowest sellers will take. The gap is the spread.

Common mix-ups

A wide spread can cost more than a commission, especially in illiquid names.

Picture this

A penny stock shows a bid of $0.50 and an ask of $0.60 — a 20% spread. Buying 1,000 shares at the ask costs $600, but selling them immediately returns only $500 at the bid. The stock needs to rise 20% just to break even, before any news or fundamentals matter. In a mega-cap ETF the same round trip might cost 0.02%. The scenario is why the bid-ask spread is called a hidden trading tax: it is invisible on your statement but real on every trade.

How to apply it

Read the spread before trading: a wide spread means high trading cost, so use limit orders and avoid needless churn. For large orders in illiquid names, the spread alone can eat your edge.

What it means for you

It is the real cost of an instant trade, paid quietly on every buy and sell.

A quick example

Key takeaway

The bid-ask spread is the invisible cost of every trade: you buy at the ask and sell at the bid, losing the difference on a round trip. In liquid names the cost is pennies; in thin ones it can dwarf a commission and consume most of a small edge. Read the spread before trading, prefer tight-spread names, and use limit orders to avoid crossing it unnecessarily. The spread is not a detail — it is the price of doing business.

Definitions reviewed by the Investing Glossary editorial team.