Bid–ask spread

The difference between the highest price buyers offer for an asset and the lowest price sellers accept. It is an immediate trading cost and a measure of market liquidity.

Bid price: The highest price a buyer is currently willing to pay for an asset. The spread’s lower boundary is the best available bid.
Market liquidity: The ease of trading an asset quickly in substantial quantity without greatly changing its price. A narrow spread generally signals lower costs for immediate trading.
Order-driven market: A market where buy and sell orders are matched according to trading rules rather than dealer quotes. Its spread emerges from submitted orders rather than a dealer’s posted markup.
Bid–ask midpoint: The average of the best bid and best ask prices. It serves as a reference price, while the spread measures the gap around it.
Ask price: The lowest price a seller is currently willing to accept for an asset. The spread’s upper boundary is the best available ask.
Effective spread: A trade’s execution price compared with the prevailing midpoint of the best bid and ask. It measures the cost actually paid, including executions inside quoted prices.
Market depth: The quantity of buy and sell orders available at prices near the current market price. Deep order books can absorb trades without sharply changing quotes.
Realized spread: A measure comparing an executed trade price with a later midpoint price. It separates a liquidity provider’s retained compensation from subsequent price movement.
Limit order book: A record of outstanding buy and sell orders, organized by price and often by submission time. Its best bid and ask usually determine the quoted spread.
Quoted spread: The difference between the best displayed ask and best displayed bid. It is the most direct reported version of the spread.

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