# Bid-ask spread Bid-ask spread is the difference between the lowest displayed price to sell a stock (ask) and the highest displayed price to buy it (bid), measured per share. ## What it means A stock quote shows two sides of a potential trade: the **bid**, the highest displayed price a buyer is willing to pay, and the **ask**, the lowest displayed price a seller is willing to accept. The gap between them is the bid-ask spread. It is also called the *quoted spread*. For someone selling immediately, the bid is the relevant displayed price; for someone buying immediately, it is the ask. Those prices can change before an order is filled, and the displayed quantity at either price may be smaller than the order. A quote therefore shows a potential cost, not a guaranteed fill price. ## How it is calculated The spread can be stated in currency per share, cents per share, or as a percentage of the midpoint: `Spread per share = Ask price − Bid price` `Midpoint price = (Ask price + Bid price) / 2` `Spread (%) = (Ask price − Bid price) / Midpoint price × 100` - **Ask price:** the lowest displayed selling price, in US$ per share in a US stock example. - **Bid price:** the highest displayed buying price, in US$ per share. - **Midpoint price:** the average of the bid and ask, in US$ per share. - **Spread per share:** the ask minus the bid, in US$ per share; the percentage formula expresses that gap relative to the midpoint. A quoted spread is different from an **effective spread**, which uses an actual execution price rather than only the displayed quote. ## Worked example Suppose a hypothetical stock has a bid of **US$49.95** and an ask of **US$50.05**. Ignore commissions, price changes and market impact for this illustration. 1. Subtract the bid from the ask: US$50.05 − US$49.95 = **US$0.10 per share**. 2. Calculate the midpoint: (US$50.05 + US$49.95) / 2 = **US$50.00 per share**. 3. Express the spread as a percentage: US$0.10 / US$50.00 × 100 = **0.20%**. 4. For 100 shares, buying at the ask rather than at the midpoint costs **US$5** relative to that midpoint: 100 × US$0.05. Selling at the bid is likewise US$5 below the midpoint. An immediate buy at the ask followed by an immediate sale at the unchanged bid would lose **US$10** across the 100 shares solely to the spread. The US$10 round-trip difference is not a commission. Nor is it a prediction of what an actual round trip would cost: quotes and available quantities can change. ## Why it matters before you trade The spread is one component of **execution cost**. A wider spread makes the price of an immediate buy higher relative to the midpoint and the price of an immediate sale lower. Its significance depends on the number of shares, not just the percentage: multiply the per-share gap by the quantity to see the full quoted round-trip gap, assuming unchanged prices and sufficient displayed quantity. It is also a liquidity clue, but not a complete liquidity measure. A narrow displayed spread does not mean that a large order can be filled entirely at the best price. Available quantity, trading volume and potential market impact matter too. Spreads can change as quotes update, so a snapshot may not describe the market when an order reaches it. A limit order sets a price boundary, but may remain unfilled. ## How PreTrAIde uses it PreTrAIde is a **pre-trade analysis** platform, not a broker. Before a user places an order, its quantitative layer estimates the bid-ask spread using a liquidity-tier model with a volatility uplift and a one-tick floor. The estimate contributes to its assessment of execution conditions alongside measures such as participation in daily volume and estimated market impact. PreTrAIde returns GO, NO-GO or MODIFY verdicts for a basket and its individual stock lines, with reasoning and a suggested execution strategy. These are decision-support outputs, not recommendations or guaranteed execution costs. Users place any trades themselves through their own broker. ## Common mistakes - **Treating the spread as a separate broker fee.** It is a difference between quoted prices, not a commission charged on top of a fill. - **Confusing the full spread with one side's midpoint cost.** At a symmetric quote, an immediate buy at the ask is half the spread above the midpoint; the full spread describes the bid-to-ask gap. - **Assuming every share fills at the best quote.** Displayed quantities may be insufficient, and a larger order may reach other prices. - **Treating an estimate or snapshot as a fixed cost.** The quoted spread can change, while the realized execution cost depends on actual fills. --- Source: https://pretraide.com/glossary/bid-ask-spread