The Bid, Ask, and Spread in Stock Investing

Unlike most other markets, the stock market has the unique aspect of having both the buyer and seller set prices. The bid price is the price the buyer states they will pay for the stock while the ask price is the price the seller is asking for the stock. The role of the stock exchange is to coordinate bid and ask prices to facilitate trading.

The difference between the bid and ask prices is known as the spread. Specifically, the spread is the amount by which the ask price exceeds the bid and represents the profit the broker keeps for managing the transaction. The size of the spread differs among assets with liquidity being the primary determinant of the size of the spread (less liquid assets tend to have greater spreads).

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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