What Is a Spread in Trading? Simple Explanation for Beginners
The spread is the difference between the price you can buy at right now and the price you can sell at right now. It's a hidden cost built into every trade.
What is a spread
An exchange always shows two prices: the ask — the best price sellers are offering, and the bid — the best price buyers are offering. The gap between them is the spread. For example, if a coin is offered at $100.10 and buyers are bidding $100.00, the spread is $0.10.
If you buy at market and sell right away, you lose exactly the spread. That's why every trade starts slightly in the red.
When the spread is wide
- Low liquidity — few orders, little-known coins and stocks.
- Nights and weekends in the stock market.
- Breaking news — traders pull their orders.
A tight spread is a sign of good liquidity — learn more in our article on liquidity. Together with fees, the spread is part of what a trade costs you; more on that in crypto exchange fees.
How to pay less
- Trade liquid assets.
- Use limit orders — the difference is explained in limit vs. market orders.
- Avoid trading right when major news comes out.
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- The spread is the gap between bid and ask, a hidden cost of entering a trade.
- A wide spread is a sign of low liquidity.
- Limit orders help you avoid overpaying.
Frequently asked questions
Who earns the spread?
Usually market makers and traders who place limit orders. The exchange makes its money separately, from fees.
Does the spread matter to investors?
Less than to traders: if you trade rarely, it's barely noticeable. For frequent short-term trades, the spread has a big impact on results.
Can I see the spread in advance?
Yes, check the order book: the difference between the best sell price and the best buy price is the spread.
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