The Bid-Ask Spread Explained: The Trading Cost Nobody Bills You For

The bid-ask spread is the gap between the highest price a buyer is currently willing to pay for a stock (the bid) and the lowest price a seller is currently willing to accept (the ask, or offer). If you buy at the ask and immediately sell at the bid, you lose the spread, even though nothing about the company has changed. It is a real trading cost that never shows up as a line on your statement.

In short: every stock has two prices at any moment, not one. The bid is what you can sell for right now, and the ask is what you can buy for right now. The difference is the spread. Heavily traded large companies often have spreads of a cent or so; small, thinly traded stocks can have spreads of several percent. Using limit orders, trading during regular hours, and trading less often are the main ways to pay less of it.

Reading a quote

A typical quote for a hypothetical stock, Maple Widgets Inc., looks like this:

Field	Value
Bid	$49.98 x 300
Ask	$50.02 x 200
Last	$50.00

The bid says someone is willing to buy 300 shares at $49.98. The ask says someone is willing to sell 200 shares at $50.02. “Last” is the price of the most recent trade, which is history, not an offer. The spread is $0.04.

The midpoint ($50.00 here) is often treated as the “fair” price at that instant. When you cross the spread, you pay roughly half the spread relative to the midpoint on the way in, and roughly half on the way out.

Where the quote comes from

Each order to buy or sell at a specific price sits in an exchange’s order book, as explained in how stock prices are set. But a US stock does not trade on just one venue. It can trade on more than a dozen exchanges and many off-exchange venues at once.

The NBBO

To give everyone a single reference, US rules under Regulation NMS define the national best bid and offer (NBBO): the highest bid and lowest offer across the exchanges, published through the consolidated data feeds known as the securities information processors (SIPs). Brokers measure their execution quality against the NBBO, and the quote you see in a brokerage app usually is the NBBO or something close to it.

A few mechanics shape that quote:

Tick size. Under Rule 612 of Regulation NMS, stocks priced at $1.00 or more are generally quoted in increments no smaller than one cent. In 2024 the SEC adopted a half-cent increment for some very tightly quoted stocks, but as of November 2026 its compliance date has been postponed (most recently to November 2027).
Round lots. The NBBO is built from “round lot” quotes. Since November 2025, the round lot size depends on the stock’s price: 100 shares for stocks priced at $250 or less, and smaller sizes for higher-priced stocks, down to a single share for stocks above $10,000. Smaller “odd-lot” orders can still sit inside the displayed spread.
Order protection. Rule 611, the “trade-through” rule, generally requires venues to avoid executing trades at prices worse than protected quotes elsewhere. In June 2026 the SEC proposed rescinding Rule 611; as of November 2026 that is a proposal, not a final rule.

Canada

Canadian-listed stocks also trade on several competing marketplaces, including the TSX and alternative trading systems. Canada has its own order protection rule under the CSA’s trading rules, and trading is supervised by CIRO under the Universal Market Integrity Rules (UMIR). The idea is the same: the best displayed prices across marketplaces form the effective spread you trade against.

What makes spreads wide or narrow

The spread is the price market makers and other liquidity providers charge for standing ready to trade. Their costs and risks set it:

Factor	Narrower spread	Wider spread
Trading volume	Millions of shares a day	A few thousand shares a day
Company size	Large, widely followed	Small, little coverage
Volatility	Calm	Prices jumping around
Time of day	Middle of regular session	Right at the open, or pre-market and after-hours
Information risk	No news pending	Earnings or a big announcement imminent
Share price	Higher price (a 1 cent tick is a smaller percentage)	Very low price (a 1 cent tick is a large percentage)

That last row matters more than people expect. A one-cent spread on a $200 stock is 0.005%. A one-cent spread on a $0.50 stock is 2%.

Volume and depth together are what people mean by liquidity: how easily you can trade a meaningful amount without moving the price.

A worked example: what the spread costs

Compare two hypothetical stocks, each bought and later sold with market orders for $10,000.

Stock A, a large company: bid $99.99, ask $100.00.

Spread: $0.01, which is 0.01% of the midpoint ($99.995).
You buy 100 shares at $100.00 = $10,000.
If the price doesn’t move and you sell at $99.99, you get $9,999.
Round-trip spread cost: $1.

Stock B, a small company: bid $4.85, ask $5.00.

Spread: $0.15, which is about 3.0% of the midpoint ($4.925).
You buy 2,000 shares at $5.00 = $10,000.
If the price doesn’t move and you sell at $4.85, you get $9,700.
Round-trip spread cost: $300.

Same dollar amount, same “zero commission,” a 300-fold difference in cost.

How it compounds with trading frequency

Suppose you trade Stock B’s kind of spread once a month: 12 round trips a year at about 3% each. Before any change in price, the spreads alone would consume roughly a third of the money you put to work over the year. Even at 0.2% per round trip, a weekly habit adds up to about 10% a year. Frequent trading in wide-spread stocks is one of the quietest ways people lose money.

Large orders and walking the book

The quoted spread only applies to the size displayed. If you want 5,000 shares and only 200 are offered at the ask, the rest fills at higher prices further up the book. The difference between the quote and your average price is often called market impact or slippage. This is why the examples in stock order types show limit orders as the default tool for larger trades in less liquid stocks.

Quoted spread, effective spread, and price improvement

The quoted spread is what you see. The effective spread is what you actually paid, measured as twice the distance between your fill price and the midpoint at the time of the order.

When a retail market order is executed at a better price than the NBBO, that is called price improvement. For example, if the NBBO ask is $50.02 and you are filled at $50.015, you received half a cent of improvement per share. Wholesale market makers often provide small amounts of price improvement on retail orders, and that is part of the argument about payment for order flow covered in how stock brokers make money.

Where to see execution quality data

In the US, SEC Rule 605 requires market centers, and since the 2024 amendments also larger brokers (generally those with 100,000 or more customer accounts), to publish monthly statistics on execution quality, including effective spreads and price improvement. The amended reporting began with data collected from August 1, 2026, and the rules added a short summary report designed to be readable by ordinary investors. Rule 606 separately requires brokers to publish quarterly reports on where they route customer orders and what payments they receive for doing so.

What can go wrong

Trading at the open or in extended hours. Spreads are typically widest in the first minutes of the session and in pre-market and after-hours trading, when fewer participants are quoting. A market order then can be expensive.
Thinly traded stocks and ETFs. A small ETF can have a wide quoted spread even if its underlying holdings are liquid. The structure behind that is explained in ETFs vs mutual funds.
Assuming the “last” price is the price. In an illiquid stock the last trade may be hours old. The bid and ask are what you can actually trade at.
Ignoring the spread because commissions are zero. Commission is one cost. The spread is another, and for small or frequent trades it is often the larger one.

How to pay less of it

Use limit orders, especially in smaller stocks, so you name the price.
Avoid the first few minutes after the open and the extended-hours sessions unless you have a reason.
Check the spread as a percentage of the price before you trade, not just in cents.
Trade less often. The spread is charged per round trip.

The short version

A stock always has a buy price and a sell price, and the gap between them is a cost you pay every time you trade. It is tiny for heavily traded large companies and large for small, illiquid ones, and it gets wider when markets are quiet or nervous. You can’t avoid it entirely, but you can measure it, use limit orders, and avoid the conditions where it is widest.