Bid-Ask Spread
The bid-ask spread is the difference between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask). It's the cost of immediate execution.
Understanding the Concept
Spread is a hidden trading cost. If Bitcoin's bid is $39,990 and ask is $40,010, the spread is $20. If you market buy, you pay $40,010; if you immediately sell, you get $39,990. You're down $20 before the price even moves. Liquid assets (Bitcoin, major stocks) have tight spreads—pennies. Illiquid assets (small altcoins, penny stocks) have wide spreads—sometimes 1-5%. For active traders, spread costs add up. Limit orders avoid paying the spread (you set the price). Wide spreads often signal low liquidity or high volatility.
Real-World Example
You're trading a small-cap altcoin. Bid: $0.95. Ask: $1.05. That's a 10% spread. If you market buy at $1.05 and immediately market sell at $0.95, you just lost 10% to the spread—no price movement required.
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