Investing for Beginners , investing

Bid-ask spread is the difference between the bid price and the ask price, or in other words it is a difference between the best offered price of a seller and the best given price by a buyer for a particular security at a particular moment. The ‘bid-ask spread’ is not a stable ratio but usually do not change dramatically, and stocks of low liquidity have high spread between the bid and ask.

The ‘bid-ask spread’ is very important at investing because it creates additional costs for investors. If investor is trading a lot and he is hurrying to buy at a bid or ask price but average market price stays the same, he inevitably will face losses because of the ‘bid-ask spread’.

Blue chip stocks usually have very low spread between bid and ask prices. When investor checks the ‘bid-ask spread’ in the stock market, he also should check for the amounts offered together with bid and ask prices.