What is the bid-ask spread?
The bid-ask spread is the gap between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask).
Every share quote has two sides. The bid is the highest price that buyers are currently willing to pay, and the ask (or offer) is the lowest price at which sellers are willing to sell. The bid-ask spread is the difference between the two. If a stock is bid at Rs 99.5 and offered at Rs 100, the spread is Rs 0.50.
The spread exists because buyers and sellers rarely agree on an exact price at the same instant. A trade happens when someone is willing to "cross the spread" — a buyer accepting the ask, or a seller accepting the bid. The last traded price you see on a ticker sits somewhere between or at these levels.
The size of the spread is a direct measure of liquidity:
- Tight (small) spreads are typical of heavily traded, liquid stocks — the large blue chips with high free float and volume. Many buyers and sellers compete, so prices converge closely, and you can trade near the quoted price. - Wide spreads appear in thinly traded, illiquid stocks. With few participants, the gap between what buyers offer and sellers demand is large, and trading at a fair price is harder.
The spread is effectively a cost of trading. If you buy at the ask and immediately sell at the bid, you lose the spread before any price movement — so wide spreads quietly erode returns, especially for active traders. This is one reason long-term investors favour liquid stocks and avoid over-trading illiquid ones.
Two practical implications follow:
- Order type matters. A market order trades immediately at the best available price, meaning you pay the ask (when buying) or receive the bid (when selling) — instant, but you cross the spread. A limit order lets you set your own price, perhaps inside the spread, but it may not fill if the market does not come to you. - Reading depth. Beyond the best bid and ask, the order book shows further buy and sell orders at other prices. Thin depth means even modest orders can move the price, while deep books absorb larger trades smoothly.
For investors, glancing at the spread before trading — especially in smaller stocks — helps avoid unpleasant surprises and is a quick gauge of how easily a position can be entered and exited.