Bid/Ask Spread

When you look at a stock or ETF price, there are actually two prices at any given moment. The bid is the highest price a buyer is currently willing to pay. The ask is the lowest price a seller is willing to accept. The gap between those two numbers is the bid/ask spread.

If a stock has a bid of $50.00 and an ask of $50.05, the spread is $0.05. When you buy, you typically pay closer to the ask price. When you sell, you get closer to the bid. That five-cent difference is a small cost you absorb on every trade.

Why it matters

For most large, popular stocks and ETFs, the spread is tiny, often just a penny or two. You probably won’t even notice it. But for thinly traded investments (small companies, niche ETFs, or anything with low volume), the spread can be much wider, sometimes 1% or more of the price.

A wide spread means you’re giving up more money every time you buy or sell. If you buy at $10.10 and the bid is only $9.90, you’re already down $0.20 per share before the investment moves at all.

One practical tip: if you use a limit order instead of a market order, you can set the exact price you’re willing to pay and avoid getting filled at the worst end of the spread. This is especially worth doing when trading anything with lower volume or during volatile market hours.

Example

You want to buy 200 units of a popular ETF like XEQT. The bid is $28.10 and the ask is $28.12, so the spread is $0.02. Buying 200 units at the ask costs you $5,624. The spread cost is just $4 total. Now compare that to a thinly traded niche ETF where the bid is $15.00 and the ask is $15.25. The spread is $0.25 per unit, and buying 200 units means you’re paying $50 extra just to get in.