Bid ask stock market definition

The bid-ask spread also known simply as "the spread" is the difference between a security's bid price and its ask price.

Let's assume you are watching Company XYZ's stock. Typically, a trader or specialist on the floor of the New York Stock Exchange would quote the bid-ask spread as follows: Note that online trading systems might refer to the bid-ask spread as "BxA.

However, only the best bid that is, the highest price offered for a security and the best ask that is, the lowest price asked for a security are used to calculate the bid-ask spread. Note that the number of shares wanted and the number of shares offered for sale may be different.

It is important to remember one key aspect of bid and ask prices: This nuance is why securities dealers make a profit on bid-ask spreads. Thus, the size of the bid-ask spread is proportional to the size of the dealer's profit although not all of the spread constitutes profit for the dealer, other fees are part of the spread.

Dealer profit is also one reason illiquid or lightly traded stocks tend to have larger spreads than frequently traded stocks. Many traders and analysts scrutinize patterns in bid-ask spreads to understand what prices trigger demand for both sellers and buyers.

Other traders and analysts feel that the bid-ask spread itself has little predictive value.

Trading Definitions of Bid, Ask and Last Price

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The Bid/Ask Spread, and How it Costs Investors

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