Bid-ask spread.
In plain English
Every tradable security has two live prices, not one. The bid is the highest price a buyer is currently willing to pay. The ask is the lowest price a seller is currently willing to accept. The difference is the bid-ask spread, the implicit cost of placing a trade. On heavily traded names like SPY or AAPL the spread is often one or two cents. On thinly traded stocks or in after-hours sessions, it widens.
01Why it matters
Buy-and-hold investors in large index funds mostly do not notice the spread. Frequent traders, options traders, and anyone buying small-cap names pay it on every round trip. A $1,000 trade in a stock with a $0.10 spread carries about $1 of friction; compound that across many trades and it adds up.
02The math, step by step
Bid example. SPY is quoted 575.42 bid by 575.43 ask. A market order to SELL hits the bid and fills at $575.42. A market order to BUY hits the ask and fills at $575.43. The spread on this name is one cent on a $575 stock, less than 0.002%. Ask example. A thinly traded small-cap might quote $12.10 bid by $12.30 ask. A 100-share round trip costs about $20 in spread alone, before any commissions.
03What this is NOT
Bid and ask are quoted from the market's perspective, not yours. The bid is what the market will BUY from you. The ask is what the market will SELL to you. Placing a market order, you sell at the bid and buy at the ask.
04Receipts
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