spread
The gap between the ask and the bid; every round trip starts this much in the red.
A spread is the gap between the ask, the price to buy now, and the bid, the price to sell now. It is one of the basic costs of entering and leaving a trade.
The spread can change with the instrument and market conditions. A wider gap means the price must move farther in your favor before the trade covers this cost; fees and slippage may add more.
The displayed spread is not a promise that an order will fill at either quoted price.
Example
The made-up Lumen/Crown pair shows an ask of 1.204 and a bid of 1.200. The spread is 1.204 − 1.200 = 0.004 Crown per Lumen.
If Marc buys 100 Lumen at the ask and immediately sells at the bid, he receives 120.0 Crown after paying 120.4 Crown: 120.0 − 120.4 = −0.4 Crown before any other fees. The price would need to move enough to cover this gap and other costs before the round trip could break even.
Common mistakes
- Assuming the spread is fixed throughout the day.
- Using the midpoint as if it were an executable price.
- Forgetting that spread is only one possible trading cost.
- Most people who trade lose money.
Learn it in the course
- Where the money goes: spread, fees and slippage · Every trade starts a little in the red. See the costs that eat small gains and why many tiny trades lose.
- Bid, ask, spread and liquidity · Read the two prices on every screen, see why thin markets and odd hours cost more, and what a big market order does to a thin order book.
- Case: place the right order · Three situations on a practice account: pick the order type, the price and the size, and say why, using the quotes, the spread and what a gap can do to a stop.
- Position size from risk and stop · Turn the risk you allow and the distance to your stop, costs included, into a number of units to buy, then cap it by what the account can actually pay for.
- Exchange, broker, instruments: a map · A plain map of where trades happen and what you can trade: shares, funds, currencies, futures and coins, plus what going short and leverage mean, with the warnings.