GLOSSARY // Orders & Execution
Bid-Ask Spread
The bid-ask spread is the distance between the best bid and the best ask: a large ETF quoted $452.30 x $452.31 has a 1-cent spread (about 0.002%), while a $4.00 small cap quoted $4.02 x $4.10 has an 8-cent spread, a full 2% of the stock price. The spread is the market's posted price for immediacy.
Crossing the spread is a cost you pay on every aggressive order, and it scales brutally with trading frequency. In the 2% spread name above, a round trip at market loses 2% before the stock moves at all, so a scalping strategy that targets 1% moves is mathematically dead there. Tight-spread, high-volume names are not a preference for active traders; they are a requirement.
A trader buys 1,000 shares of the $4.02 x $4.10 small cap at market, paying $4.10, then immediately sells at market, receiving $4.02. The stock never ticked, and the account is down $80. The same round trip in the 1-cent ETF spread costs $10 on a position 100x larger in dollar terms.
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.