What is a bid-ask spread?

A bid-ask spread is a fundamental concept in financial markets, representing the price discrepancy between the highest price a buyer is willing to pay for a particular asset (the bid) and the lowest price a seller is willing to accept (the ask). It signifies the cost of trading and reflects market liquidity. A narrow spread indicates a highly liquid market, where buyers and sellers are in close agreement on the asset's value. In contrast, a wide spread suggests less liquidity and potential trading costs. Traders aim to buy low and sell high within this spread, making it a critical factor in market efficiency and profitability.

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