What is a bid-ask spread?

The bid is the highest price a buyer is offering at that moment. The ask is the lowest price a seller is asking. The difference is the spread. If you buy immediately and sell straight away, you sell at the bid, so you lose roughly the spread before the price has even moved.

When is a spread 'large'?

That is relative. Convert the spread to a percentage of the price: (ask minus bid) divided by ask, times 100. A spread of 1 cent on a €50 stock is 0.02%. A spread of 40 cents on a €3 stock is almost 13%. The larger this percentage, the more the price has to rise before you break even. Stocks that trade a lot usually have smaller spreads than thinly traded stocks.

Why is the spread often wider outside regular trading hours?

Outside regular hours there are fewer buyers and sellers. The gap between bid and ask is then often wider and prices can swing faster. If you trade outside trading hours, consider a limit order. Which hours and order types are available differs per broker.

How can I limit the cost of the spread?

With a limit order you set the price at which you want to buy or sell, so you never pay more than your limit. A limit order is not always executed, though. You can also choose stocks that trade a lot, and trade when the exchange is at its busiest.

Are option spreads different from stock spreads?

Often, yes. For options, the spread as a percentage of the price is usually larger than for stocks, especially for options that trade rarely. Always look at the bid and ask before placing an order, and preferably use a limit order.

Bid-ask spread explained: what does the gap between buy and sell price cost?

In short: The bid-ask spread is the gap between the highest buying price (bid) and the lowest selling price (ask). You pay this gap on every buy and sell. It is a hidden cost on top of your broker's commission.

Step by step

Find the bid and ask price of a stock in your platform.
Calculate the spread: ask minus bid.
Convert the spread to a percentage of the price.
Check whether the stock trades a lot (its daily trading volume).
Consider a limit order so you do not automatically pay the full spread.
Compare the spread during and outside regular trading hours.

What the spread costs you

Every stock has two prices: the bid (what buyers offer) and the ask (what sellers ask). If you want to buy right now, you buy at the ask. If you want to sell right now, you sell at the bid. The difference is the spread.

Example (hypothetical): stock X shows a bid of €50.00 and an ask of €50.02. The spread is 2 cents, or 0.04% of the price.

You buy 100 shares at €50.02 and pay €5,002.
If you sell them straight away at €50.00, you receive €5,000.
You are €2 down before the price has moved, and before your broker’s commission.

For a thinly traded stock it is different.

Example (hypothetical): stock Y shows a bid of €3.00 and an ask of €3.40. The spread is 40 cents, almost 12% of the price. The price has to rise a lot before you break even. For a stock like X, it is only a fraction of a percent. You can see a worked example of the break-even point in the break-even calculator.

Liquidity

Liquidity tells you how easily you can buy or sell without moving the price. Many buyers and sellers usually means a small spread. Few buyers and sellers usually means a wider spread.

Large companies on Euronext, such as those in the AEX index, usually have a small spread.
Small companies or stocks with little daily trading often have a wider spread.
With a wider spread it is also harder to leave a position quickly without a price difference.

Who sets the spread?

Often there are parties, called market makers, who continuously quote both a bid and an ask. They earn from the difference between those two prices and in doing so keep trading going. Some brokers also add their own markup to the price or receive payment for routing orders. How your broker does this is described in its order execution policy. Compare broker costs in the comparison tool.

How to keep the cost of the spread low

Use a limit order. With a limit order you set the maximum buying price or minimum selling price yourself. Your order may not be executed, though. Read more in order types explained.
Watch the trading hours. It is usually busier at the start and end of the trading day. Outside regular hours the spread is often wider. More on this in market hours and trading sessions.
Choose liquid stocks or funds if you trade often.
Count the spread in your costs. Costs per trade consist of commission, spread and any currency costs.

Investing involves risk: you can lose some or all of your money. This tutorial is information, not investment advice.

Work it out yourself

Open the full calculator →

Test yourself

Practice questions to check your understanding, not advice.

What is the bid-ask spread?
- The difference between the highest buy price (bid) and the lowest sell price (ask)
- The commission your broker charges per order
- The difference between the opening price and the closing price
Show answer
Answer:A. The difference between the highest buy price (bid) and the lowest sell price (ask)
The spread is ask minus bid. You pay this difference on every purchase and sale, on top of the commission.
Share X trades at €50.00 bid and €50.02 ask. You buy 100 shares with a market order and sell them straight back at the bid. How much do you lose, excluding commission?
- €0
- €2
- €5,002
Show answer
Answer:B. €2
You pay €5,002 (100 × €50.02) and receive €5,000 (100 × €50.00). The €2 difference is the spread.
Share Y trades at €3.00 bid and €3.40 ask. Roughly how large is the spread as a percentage of the price?
- About 12%
- About 1.2%
- About 40%
Show answer
Answer:A. About 12%
The spread is €0.40. That is €0.40 divided by €3.40, about 12%. The price therefore has to rise considerably before you break even.
Which shares usually have a small spread?
- Shares with little daily trading
- All shares outside regular trading hours
- Large companies with a lot of trading, such as shares in the AEX
Show answer
Answer:C. Large companies with a lot of trading, such as shares in the AEX
Many buyers and sellers (high liquidity) usually means a small spread. With little trading or outside trading hours the spread is often larger.
What is a drawback of a limit order when you want to limit the cost of the spread?
- You always pay the full spread
- Your order may not be executed
- You can only place it at the weekend
Show answer
Answer:B. Your order may not be executed
With a limit order you set the maximum buy price or minimum sell price yourself. The drawback is that the price may never reach your limit, so the order is not executed.

Frequently asked questions

What is a bid-ask spread?: The bid is the highest price a buyer is offering at that moment. The ask is the lowest price a seller is asking. The difference is the spread. If you buy immediately and sell straight away, you sell at the bid, so you lose roughly the spread before the price has even moved.
When is a spread 'large'?: That is relative. Convert the spread to a percentage of the price: (ask minus bid) divided by ask, times 100. A spread of 1 cent on a €50 stock is 0.02%. A spread of 40 cents on a €3 stock is almost 13%. The larger this percentage, the more the price has to rise before you break even. Stocks that trade a lot usually have smaller spreads than thinly traded stocks.
Why is the spread often wider outside regular trading hours?: Outside regular hours there are fewer buyers and sellers. The gap between bid and ask is then often wider and prices can swing faster. If you trade outside trading hours, consider a limit order. Which hours and order types are available differs per broker.
How can I limit the cost of the spread?: With a limit order you set the price at which you want to buy or sell, so you never pay more than your limit. A limit order is not always executed, though. You can also choose stocks that trade a lot, and trade when the exchange is at its busiest.
Are option spreads different from stock spreads?: Often, yes. For options, the spread as a percentage of the price is usually larger than for stocks, especially for options that trade rarely. Always look at the bid and ask before placing an order, and preferably use a limit order.