Bid-Ask Spread
Quick Definition
The bid-ask spread is the difference between the best price buyers are willing to pay (the bid) and the best price sellers are willing to accept (the ask) at any moment. It is the built-in cost of trading: you buy at the ask and sell at the bid, and the spread stays with whoever provided the quote. On liquid stocks it is a fraction of a percent; on thin small caps it can be several percent.
What It Means
Every trade has two prices. The bid is the highest price currently posted by any buyer. The ask (also called the offer) is the lowest price currently posted by any seller. The gap between them is the spread. If the best bid is $100.00 and the best ask is $100.05, the spread is $0.05.
This gap exists because buyers want to pay less and sellers want to receive more. Market makers and other liquidity providers stand in the middle, willing to buy at the bid and sell at the ask, and they earn the spread as compensation for taking the risk of holding inventory. In a sense, the spread is the price of immediacy: you can trade right now, but you pay a small premium to do so.
For investors, the spread is a cost that does not show up on a commission line. With zero-commission trading now standard at major US brokers since 2019, the spread and related market-structure costs have become a larger share of the total cost of trading. A stock with a 1% spread costs you 1% the moment you buy, before any price movement, and another 1% when you sell. On a $10,000 trade that is $100 each way, far more than the zero commission suggests.
Spread width depends on liquidity. Heavily traded names like SPY, Apple, and Microsoft have spreads of a penny or two, often a fraction of a basis point. Thinly traded small caps can have spreads of tens of cents or even dollars, representing several percent of the price. The relationship is inverse: the higher the trading volume and the more competitors posting quotes, the tighter the spread.
How It Works
The quote. Exchanges publish a continuous stream of bids and asks. The National Best Bid and Offer (NBBO) is the best bid and best ask across all US exchanges, which brokers are required to route to for retail orders.
The spread in dollars and basis points. Spread = ask minus bid. To compare across stocks, divide by the midpoint (the average of bid and ask) and express as a percentage or basis points (1 basis point = 0.01%). A $0.05 spread on a $100 stock is 5 basis points; the same $0.05 on a $20 stock is 25 basis points.
The round-trip cost. Buying at the ask and later selling at the bid means you cross the spread twice. A 5 basis point spread costs about 10 basis points round trip, plus any commission. Over many trades, this compounds.
Midpoint execution. Some orders fill at the midpoint between bid and ask, paying half the spread or none at all. This is more common for large retail orders routed to venues that offer midpoint matching. Data from May 2026 showed about 61% of aggregate trades executing at the midpoint, with about 27% at the bid or ask.
What moves the spread. Liquidity (more participants tighten it), volatility (wider during fast moves), news events (wider around earnings), and stock price level (lower-priced stocks tend to have wider percentage spreads). Market makers widen quotes when risk rises, because they might get stuck holding a position that moves against them.
Real-World Examples
Apple in 2026. A recent quote for Apple showed a best bid of $333.72 and a best ask of $333.86, a spread of $0.14. Against the midpoint of $333.79, that is about 4.2 basis points, an after-hours reading and still well under 1% of the price. For a 100-share trade, the spread cost is about $14.
SPY vs a thin small cap. Among heavily traded names, SPY's typical quoted spread measured about 2 cents, or 0.3 basis points of its share price, with Coca-Cola at 1 cent (1.2 bps) and Tesla at 8 cents (2.4 bps). Then comes the cliff: Nathan's Famous (NATH) measured about 58 cents (59.4 bps) and Seneca Foods (SENEA) about 193 cents. The thin names cost 20 to 60 times more to trade as a percentage of price.
Round lot reform of November 2025. The SEC's round lot changes, implemented in November 2025, affected spreads in certain price tiers. The $1,000 to $10,000 price group saw spreads tighten roughly 34%, from about 53 basis points before reform to around 35 basis points after, with further narrowing into March 2026. The $250 to $1,000 group tightened about 11%. The $0 to $250 group, which saw no round lot change, posted the widest spreads, averaging about 80 to 85 basis points. The reform shows how market structure rules directly shape the cost you pay.
Spreads during volatility. During the April 2025 tariff shock and subsequent volatility, bid-offer spreads remained elevated and average depth of book fell 32% compared with January 2025. When markets move fast, market makers pull back, quotes thin out, and the spread widens precisely when investors are most likely to trade in a panic. This is why trading during volatility is especially expensive.
| Name | Typical spread | In basis points | 100-share spread cost |
|---|---|---|---|
| SPY | $0.02 | 0.3 bps | $2 |
| Coca-Cola | $0.01 | 1.2 bps | $1 |
| Tesla | $0.08 | 2.4 bps | $8 |
| Apple | $0.14 | 4.2 bps | $14 |
| Nathan's Famous | $0.58 | 59.4 bps | $58 |
| Seneca Foods | $1.93 | ~190 bps | $193 |
Key Points to Remember
- The spread is a hidden trading cost that does not appear on your commission line, and it can dwarf the commission on thin stocks.
- Liquid, high-volume names have spreads of a fraction of a basis point; thin small caps can have spreads of several percent.
- You cross the spread twice in a round trip, buying at the ask and selling at the bid.
- Spreads widen during volatility and around news, which makes panic trading especially costly.
- Using limit orders instead of market orders can avoid paying the full spread, at the risk of not getting filled.
Common Mistakes to Avoid
Using market orders on thin stocks. A market order on a thinly traded name can fill at a terrible price if the quote is wide. Use limit orders for anything with a spread above a few basis points, and check the quote before you trade.
Ignoring the spread when comparing funds. An ETF and a mutual fund tracking the same index can have different trading costs. The ETF has a spread you pay on each trade, while the mutual fund may trade at net asset value without a spread but may carry other costs. Our ETF vs mutual fund comparison covers this.
Trading frequently in wide-spread names. A 50 basis point spread costs you 1% round trip. Do that 20 times a year and you have given up 20% to spreads alone, before any price movement. Frequency multiplies the damage.
Panic selling into a wide spread. During a crash, spreads widen exactly when people rush to sell. Selling at the bid when the spread is 2% locks in a large immediate loss on top of the price decline. Having a plan that avoids forced selling in volatile moments saves this cost.
Assuming zero commission means free trading. The commission is zero, but the spread, bid-ask bounce, and payment for order flow effects still cost money. Total trading cost is what matters, not the headline commission. See trading commission and transaction fee.
Related Concepts
The bid-ask spread is a core measure of liquidity and is maintained by market makers who post quotes. It interacts with trading volume, the role of your broker in routing orders, and off-exchange venues like dark pools. For fund investors, the spread is part of the cost of trading ETFs, alongside the expense ratio and any trading commission or transaction fee. For practical guidance, read our posts on how to choose the best brokerage and common investing mistakes beginners make. A clear explanation of execution quality and spreads is available from the Cboe insights on market quality.
Frequently Asked Questions
Q: Why is the spread wider on some stocks? A: Lower trading volume, fewer market makers, higher volatility, and lower share prices all widen the spread. The spread compensates whoever stands ready to trade, and that compensation must be larger when the risk of holding the position is higher.
Q: How can I avoid paying the full spread? A: Use a limit order at or near the midpoint. You may not get filled if the price moves away, but when you do fill, you pay less than the full spread. Market orders almost always pay the full spread.
Q: Does the spread matter for long-term buy-and-hold investors? A: Less, because you cross it rarely. For a stock held for 10 years, a 5 basis point spread paid once is negligible. The spread matters most for frequent traders and for anyone trading thin, wide-spread names.
Q: What is the NBBO? A: The National Best Bid and Offer, the best bid and best ask across all US exchanges. Brokers are required to route retail market orders to achieve NBBO or better, though the actual fill can depend on routing and venue.
Q: Are spreads tighter in 2026 than before? A: For many price tiers, yes. The November 2025 round lot reform tightened spreads in the $250 to $10,000 range, and competition among venues continues to compress spreads for liquid names. Spreads can still widen sharply during volatility, as seen in 2025 and 2026.
