The bid-ask spread is the difference between the best ask and the best bid. A trader who wants to buy immediately generally pays the ask, while a trader who wants to sell immediately generally accepts the bid. That gap is a real market friction even before commissions or fees are included.
How it works
If the best bid is 99.98 and the best ask is 100.02, the quoted spread is 0.04. If you buy at 100.02 and instantly reverse the trade while nothing else changes, the best available sale price is still around 99.98.
Spreads are not fixed fees. They reflect competition among liquidity providers, trading activity, volatility, inventory risk, and information risk. Highly active markets often support tighter quotes, while thin or uncertain markets can require a wider cushion between buyers and sellers.
Why it matters
A strategy that targets small moves can lose most of its apparent edge to the spread. If the expected gain is only a few basis points, paying a large spread on both entry and exit can dominate the result.
The spread is also a quick clue about execution quality. A midpoint on a screen can look stable even while the prices at which you can actually buy and sell move farther apart.
A simple market example
A June 2026 New York Fed study makes the liquidity effect unusually concrete. In the 2-year Treasury sector, the average effective bid-ask spread was about 0.66 basis points for the current on-the-run note. After that security became the first off-the-run issue, the spread rose to about 1.22 basis points; for the second off-the-run issue, it reached about 2.23 basis points. The credit standing of the U.S. government did not suddenly change between those securities. What changed was trading activity and liquidity. Less active bonds cost more to trade because buyers and sellers are farther apart in effective price terms.
Common mistakes
Looking only at the midpoint or last trade and assuming that is the price available to you right now.
Assuming a wider spread always means the asset's fundamentals deteriorated. Spreads can widen simply because volatility increased or liquidity providers became more cautious.
Frequently asked questions
Is the bid-ask spread the same as a commission?
No. A commission is an explicit fee. The spread is embedded in market quotes, although both contribute to trading costs.
Why do spreads widen around economic releases?
Price uncertainty jumps, so market makers demand more protection against trading at a stale price.
Does a tight spread always mean strong liquidity?
Not necessarily. You also need to know how much size is available behind the best quotes.
Educational content only. Definitions describe common market usage and may vary by jurisdiction, instrument, or institution.