Glossary · Orders & trading · Beginner-friendly
Bid-ask spread
In plain English
The bid is what buyers offer; the ask is what sellers want. The gap between them is a real cost of trading - wider gaps cost more.
Everyday analogy: A flea market where the seller wants $12 and the buyer offers $10 - that $2 gap is the friction.
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Why it matters
The spread is a real trading cost. In thin names it can dwarf commissions and silently erase edge.
A bit more detail (optional)
What you pay
Crossing the spread (buying the ask or selling the bid) costs money even before commissions. Wider spreads mean higher friction.
When spreads widen
Illiquid stocks, after-hours sessions, and volatile event windows often show wider spreads. Size carefully.
Simple examples
Thin name tax
A stock bids $10.00 and asks $10.40. Buying and immediately selling “at market” can lose ~4% to the spread alone.
Round-trip friction
Bid $25.00 / ask $25.50. Buy the ask and sell the bid immediately and you have lost ~2% before the thesis even starts.
Easy mistakes to avoid
- Using market orders habitually in illiquid names
- Ignoring after-hours spreads
- Sizing huge relative to average volume
Remember: Treat the spread as a trading cost - wider books need smaller size or limits.