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Basics of the Bid, the Ask, and the Bid-Ask Spread in Stock Trading

If you want to purchase shares right away, you are going to have to pay the asking price. Similarly, if you want to sell shares right away, you have to pay the bidding price.

Bid

  • What people are looking to get the order at
  • If you want to purchase 100 shares of Nike, you might bid $50.90, but the ask is $50.98
  • In order to get that order, you need to pay $50.98

Ask

  • What people are looking to get for the stock

Bid-Ask Spread

  • It is the difference between the bid and the ask
  • What the market makers have to make
  • i.e. $50.98-$50.90 = $0.08
  • $0.08 is what the market makers get paid to execute that order
  • As soon as you purchase the stock you lose $0.08 per share
  • You can’t buy and sell immediately because it will be costly
  • You need to take the bid-ask spread into account when trading

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