Bid-ask spread

At any moment a traded share has two prices. The bid is the best price at which someone is currently willing to buy, so it is what you receive if you sell immediately. The ask, also called the offer, is the best price at which someone is willing to sell, so it is what you pay if you buy immediately. The difference is the spread. Market makers and other traders earn the spread by buying at the bid and selling at the ask, which compensates them for providing liquidity and for the risk of holding stock.

The spread is a real trading cost even though it never appears as a separate fee: every time you buy and then sell, you give up roughly the width of the spread. Spreads are narrow for heavily traded large-company shares and popular ETFs, and wide for small companies and thinly traded bonds. They also tend to be wider around the open and close of trading and whenever markets are volatile. For frequent traders, spreads can cost more than commissions. A limit order controls the price you pay but does not guarantee that the trade happens.