What is Bid Ask Spread in Trading
BY Chris Andreou
|December 29, 2025The bid ask spread might seem insignificant at first glance, but for active traders, it can quickly become a significant trading expense over time. That tiny gap between the bid and ask prices, that is what the spread is in trading.
Understanding how spreads work is essential for preserving your capital and enhancing your potential to profit. In this article, we will explain what the bid ask spread costs you, why it exists and how to reduce it when trading.
Keep reading to learn more.
The bid ask spread in trading
The bid ask spread is an often overlooked cost in trading. Even with "commission-free" brokers, trading costs still exist through the all-pricing model from the spread. When a trader buys an asset, they must pay the higher ask price, and conversely, when selling, they can only do so on the lower bid price.
The spread is simply the difference between these two prices:
Spread = ask price - bid price
For example, you might see a quote for a company’s stock price as follows:
ABC Company $10.00 / $10.02
- Bid price: $10.00
- Ask price: $10.02
- Spread = $10.02 - $10.00 ($0.02)
So if you buy and immediately sell using market orders, you'd lose $0.02 per share right away, that's the cost of trading with spreads.
Why the spread exists
By now, you are probably wondering, why isn't the spread zero? Why is there a spread at all? Here are the reasons why there is a bid ask spread in trading.
Financial markets are continuous auctions
Financial markets function as ongoing auctions where buyers and sellers place orders at prices they're willing to transact at. At any given moment, the highest bid and lowest ask rarely match exactly, creating a natural gap between them.
Supply and demand dynamics
The bid ask spread is a direct, momentary reflection of the supply and demand for an asset. Because buyers always seek the lowest price and sellers seek the highest, these two prices almost never perfectly align. The constant, momentary imbalance between the volume of buy orders and sell orders at any given price level is the continuous engine that creates the spread.
Liquidity has a price
Market makers and liquidity providers stand ready to buy or sell at any time, quoting prices on both sides of the market. The spread compensates them for:
- Taking on risk
- Managing position exposure
- Providing immediate execution
This service of "always being there" by your broker when you want to trade isn't free, the spread is partly how they get paid for providing liquidity.
Volatility and uncertainty widen spreads
When prices are jumping around unpredictably, liquidity providers face greater risk that prices will move against them after they've taken a position. To protect themselves, they quote wider spreads. Think of it as an insurance premium, the more uncertain the conditions, the more they charge for taking on risk.
Low liquidity / low volume widens spreads
In thinly traded markets, there are simply fewer participants competing to offer the best prices. With less competition, spreads naturally widen. This is why penny stocks or obscure altcoins often have much wider spreads than S&P 500 companies or major cryptocurrencies.
Market structure and minimum price increments
Markets have rules about the smallest allowable price movement (tick size). For example, many stocks trade in $0.01 increments. These structural constraints create a natural minimum for how tight spreads can be.
Do you want to experience tight spreads on forex? Trade with our Raw Spread account.
How much you pay from the spread
Let's make this practical by calculating exactly what spreads cost you in real trading scenarios.
Shares or commodities example
The simplest calculation is just the difference between ask and bid:
Spread = Ask Price - Bid Price
Using our example:
- Ask: $25.03
- Bid: $25.00
- Spread: $0.03 per share
For a 100 unit or share deal, that's a $3 cost from the spread.
Forex example
Using a major currency pair like EUR/USD, the quote might be:
- Ask: 1.12015
- Bid: 1.12010
- Spread: 0.00005 (or 0.5 pips)
For a 1 standard lot trade (100,000 units), where 1 pip is worth $10, the cost would be $5 per round turn.
Round turn lot reality
The cost to cross the bid ask spread becomes even more clear when you look at a round turn trade, buying and then selling. This is how it works;
- Buy 1 lot of EURUSD at 1.12015 ask
- Immediately sell at 1.12010 bid
- Instant loss: $3 (plus any other commissions)
This $3 difference isn't a market fluctuation, it's the cost of immediacy you pay for using market orders on both sides.
Your charts don't plot the bid ask spread
Charts typically do not show both the bid and ask prices simultaneously for a few key reasons.Including two lines (one for bid and one for ask) on every chart would make them overly cluttered and difficult to read. To maintain a clean visual, most platforms default to showing only one price, usually the bid price.
The reason why the bid and the ask prices are not commonly used together is because most chart types, especially candlestick and bar charts, require four snapshots to form historical price action. The open, high, low and closing prices for any given time interval are recorded and one of the two prices must be used for consistency.
Traders need to be aware that the bid ask spread exists and it must be taken into account when trading.
How to see the bid ask spread on your chart
While the common and more popular chart types don't show the spread, traders using Metatrader 4 and 5 can see the spread’s width and the bid and ask prices in real-time through:
The Quote Panel
The most direct way is by looking at the best bid and best ask prices displayed in the quote panel or order entry window.
Chart Settings
Metatrader allows you to enable a setting to show the bid and ask price lines together, making the spread visually apparent on the y-axis of your chart.
What widens or tightens spreads
The bid ask spread constantly fluctuates with the price of assets. When the spread is wide or tight, you can usually trace it to one of a few market forces and adjust how you trade.
- Liquidity: With fewer buyers and sellers competing, or when liquidity is low, the bid and ask prices don’t converge as tightly. If liquidity is scarce, consider a more liquid substitute.
- Volatility: During breaking news or big economic releases, spreads often widen as most traders and liquidity providers try to protect themselves from fast, unpredictable price swings.
- Timing: At the open and close of the day’s trading session participation thins out, during the mid‑market session, or when more participants are active, spreads tend to be tightest. For forex, the Asian session usually has the least participation, while most participation occurs during the London and US session overlap.
- Large orders: A large market order can consume all the available volume at the best price and is then forced to execute at successively worse prices to get filled. This action drives the price against the trader, resulting in a much higher spread.
In short, spreads reflect liquidity, volatility, time of day, as well as the characteristics of the asset you’re trading. You can often improve execution by choosing when to trade and favoring more liquid instruments.
How to reduce the cost of the spread
You can’t eliminate the bid ask spread, but you can minimize how much of it you pay by aligning your tactics and trading strategy with the forces that make spreads widen or tighten.
Here are some things to consider:
- Favor highly liquid instruments
- Trade during times when participation is highest
- Avoid volatility spikes, such as high impact events
- Trade less frequently
- Open a trading account with tighter spreads
By being selective about what, when, and how you trade, you can reduce the cost of the spread.
Conclusion
The bid ask spread is the price you pay to execute trades in the markets. While you can't eliminate it entirely, you can significantly reduce its impact on your trading results.
By understanding how spreads work and implementing these strategies, you'll reduce your trading costs and enhance your overall performance,
Are you ready to put your knowledge about spreads into practice? Open a demo or live raw Spread trading account with TIOmarkets.
Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose. Professional client’s losses can exceed their deposit. Please see our risk warning policy and seek independent professional advice if you do not fully understand. This information is not directed or intended for distribution to or use by residents of certain countries/jurisdictions including, but not limited to, USA & Countries included in the OFAC sanction list. The Company holds the right to alter the aforementioned list of countries at its own discretion.
TIOmarkets offers an exclusively execution-only service. The views expressed are for information purposes only. None of the content provided constitutes any form of investment advice. The comments are made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.
Join us on social media
Experienced independent trader
Related Posts
