The difference between bid price (bid) and ask price (ask). It is the price difference between what a buyer is willing and ready to pay for a security and what the seller is willing and ready to accept for it under existing market conditions. This spread is a source of income for market makers and other dealers (like specialists) who purchase securities at the lower price and sell them at the higher price.
Spread = ask price – bid price
In market parlance, it is the difference between the prices quoted for an immediate sale and an immediate purchase of an asset in the market, including stocks, futures contracts, options, commodities, or currency pairs. The size of the spread (how wide it is) in a given asset is a measure of its liquidity in the market. It also reflects the size of transaction costs.
Spread also refers to a position taken in two or more options or futures contracts to establish a setting whereby relative price relationships can be employed to make a profit from potential changes over time.
This spread is supposed to cover various costs associated with a trade: costs of establishing positions (transaction legs), risk premium, and profit margin.
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