Bid, Ask & the Spread
The two prices that always exist at once, and why the gap between them is a hidden cost.
There is never just one price. At any instant a stock has two: the bid (the highest price someone willArranging how your wealth passes on after death. pay) and the ask (the lowest price someone willArranging how your wealth passes on after death. sell for). The gapA jump between one bar’s close and the next bar’s open. between them is the spreadThe gap between the highest buy price and lowest sell price..
ExampleBid ₹100.00, Ask ₹100.10. If you buy “at market” you pay ₹100.10; if you immediately sell, you get ₹100.00. You’ve lost ₹0.10 instantly — the spreadThe gap between the highest buy price and lowest sell price.. On a liquidHow easily an asset can be bought or sold without moving its price. large-capThe biggest, most established listed companies. it’s a paisa or two; on an illiquidHow easily an asset can be bought or sold without moving its price. small-capSmaller companies with high growth potential and high risk. it can be 1–2% of the price.
The spreadThe gap between the highest buy price and lowest sell price. is a real, invisible cost you pay on every market orderAn order to buy or sell immediately at the best available price. — the toll for crossing from buyer to seller. Wide spreads are one of the biggest hidden taxes on traders of thinly-traded stocks.
Common mistake“The stock is at ₹100, so I’ll buy and sell at ₹100.” No — you buy at the ask and sell at the bid. The quoted “price” is usually the last trade, which sits somewhere between.
Key takeawayBid = best buy price, ask = best sell price; the spreadThe gap between the highest buy price and lowest sell price. between them is an instant cost you pay, and it widens as liquidityHow easily an asset can be bought or sold without moving its price. falls.
FAQs
How do I avoid paying the spread?
Use limit orders instead of market orders — you set your price and wait to be matched, rather than crossing the spread immediately. And favour liquid stocks, where the spread is tiny to begin with.