The spread is one of the simplest yet most important concepts in trading. Every market has buyers and sellers, and they rarely agree on the exact same price. The bid is the highest price buyers are offering, while the ask is the lowest price sellers will accept. The gap between the two—no matter how small—is the spread.
Spreads change constantly based on liquidity, volatility, and market activity. In highly liquid markets like major currency pairs or large-cap stocks, spreads tend to be very tight because there are many participants actively trading. In less liquid markets—such as small-cap stocks, exotic currencies, or volatile crypto tokens—spreads can widen dramatically, increasing trading costs.
For traders, the spread is more than a number—it’s a hidden cost. The moment a trader enters a position, they effectively start slightly “in the red” because they buy at the ask and sell at the bid. Understanding spreads helps traders choose the right times to trade, avoid expensive markets, and manage risk more effectively.
The spread matters because it affects the true cost of trading. Wide spreads can reduce profitability, increase slippage, and make some markets harder to trade efficiently.
When liquidity is high, there are plenty of buyers and sellers, so spreads shrink. When liquidity is low—such as during off-hours or in niche markets—spreads widen because buyers and sellers are farther apart in price. Liquidity providers adjust spreads based on how risky or active the market is.
In volatile markets, prices move rapidly, increasing uncertainty for market makers. To protect themselves from sudden losses, they widen spreads. This gives them more room to adjust prices as conditions change. Traders often see the biggest spread jumps during earnings releases, economic announcements, or major news events.
Short-term traders rely on small price movements to profit. If the spread is large relative to the expected gain, the trade becomes less attractive—or even unprofitable. Tight spreads are essential for day traders, scalpers, and algorithmic strategies that depend on precision.
A stock shows a bid of $100 and an ask of $100.10. The $0.10 difference is the spread. If a trader buys at $100.10 and immediately sells at $100, they lose $0.10—demonstrating how spreads act as an entry cost.
FinFeedAPI’s Stock API is the best match because accurate spreads depend on high-quality data. Developers can use bid–ask data, intraday pricing, and historical volatility patterns to analyze spreads, build execution models, or optimize algorithmic trading strategies.
