Bid-Ask Spread

In short

Difference between the highest buy offer and lowest sell offer

The bid is what buyers will pay; the ask is what sellers want. If the bid is $99.95 and the ask is $100.05, the spread is $0.10. Every time you trade, you pay this spread as a hidden transaction cost.

The bid-ask spread represents transaction cost and liquidity. Narrow spreads ($0.01) indicate liquid markets; wide spreads ($0.50+) indicate illiquid stocks. Market makers profit from this spread. Use limit orders to avoid paying the full spread.

Formula

Spread = Ask Price - Bid Price

Thresholds

$0.01: Highly liquid — major stocks
$0.01-0.05: Good liquidity
$0.05-0.20: Moderate — adds up over time
>$0.20: Illiquid — use limit orders

Related concepts

Market Order — A market order says 'buy this stock right now at whatever price it's selling for.' You get filled immediately but might pay slightly more than you expected, especially for less liquid stocks.
Slippage — You see a stock at $50 and hit buy. By the time your order fills, it's $50.08. That $0.08 is slippage — the price moved between when you decided to buy and when the order actually filled.
VWAP — VWAP is the true average price traders paid throughout the day, weighted by how many shares traded at each price. Institutions use it as a benchmark — buying below VWAP is considered a good fill.
Market Hours — US stock markets are open Monday–Friday, 9:30 AM – 4:00 PM ET. There's also pre-market (4 AM – 9:30 AM) and after-hours (4 PM – 8 PM) trading, but with much less volume and wider spreads.