Bid-Ask Spread
trading-basics
What it means
The difference between the highest price a buyer is willing to pay (bid) for an asset and the lowest price a seller is willing to accept (ask). Tighter spreads mean lower trading costs.
Example
If an ETF has a bid price of $100 and an ask price of $100.05, the bid-ask spread is $0.05. On a 100-share trade, your total trading cost from the spread is $5.
Mistake beginners make
Beginners ignore bid-ask spreads, especially on low-volume or niche ETFs. Wide spreads can eat into your returns every time you buy or sell, even if the ETF itself performs well.
Related terms
- Liquidity — How easily you can buy or sell an asset without moving its price. High liquidity means lar…
- Volume — The total number of shares, contracts, or coins traded during a period. It shows how much …
- Execution — The whole process of getting your order filled: routing it, matching it, and reporting the…