Markets · 6 pages · 12 min

How a bid-ask spread is a cost

Buying at the ask and selling at the bid pays the spread, a cost of trading immediately.

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From the opening

The bid is the highest price a buyer is currently willing to pay, and the ask is the lowest price a seller is currently willing to accept. The spread between them is a cost of immediacy, because a buyer who wants the security now pays the ask and a seller who wants cash now receives the bid. The opening covers the bid buys and the ask sells, crossing the gap costs immediacy, and the midpoint is not a quote.

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Inside

The bid buys and the ask sells
Crossing the gap costs immediacy
The midpoint is not a quote
Size beyond the top costs more
Where the idea stops applying
A distinction worth keeping

Sources

Bid-ask spread as a trading cost
Quoted spread versus effective spread

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How a bid-ask spread is a cost

From the opening

Inside

Sources

Also on the desk