Bid–Ask Spread
Market Microstructure glossary · Spread Economics & Liquidity Measurement
Definition
The difference between the ask price and the bid price. Compensates liquidity providers for order processing costs, inventory risk, and adverse selection.
Bid–Ask Spread in plain English
At any moment sellers want a slightly higher price (the ask) than buyers will pay (the bid), and the gap between them is the bid–ask spread. That gap is basically the fee you pay for the convenience of trading instantly: buy at the ask, sell at the bid, and you eat the difference. It's like a currency-exchange booth that buys dollars low and sells them high — the spread is how the booth earns its keep. Here the earner is the "liquidity provider" (someone always ready to trade with you), and the spread pays them for their effort, the risk of getting stuck holding shares, and the danger that whoever's trading with them knows something they don't.
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