Glossary
Bid-Ask Spread
The gap between the buy price and sell price
The bid-ask spread is the gap between the highest price a buyer will pay and the lowest a seller will accept. Buy and immediately sell, and you start out down by that gap.
The spread is effectively a trading cost. It is never billed like a commission, but you enter at a disadvantage the moment you buy — and the more often you trade, the more it accumulates.
Heavier trading narrows it. Large caps trade within a cent or two, while illiquid stocks and some ETFs can spread over 1%. This is what people mean when they say liquidity is a cost.
That makes limit orders especially important in thinly traded names: a market order simply pays the whole spread. Spreads also widen at the open and near the close, so those windows are worth avoiding. Checking it is simple: look at how far apart the buy and sell prices sit on the order screen. A noticeably wide gap is a signal that the security trades thinly.