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What does the Bid Ask Spread Mean

What Does The Bid Ask Spread Mean?

 

    When you look up the quote for any stock symbol one of the statistics you are sure to see is the bid/ask spread. This spread is usually found right below the current price per share or PPS. 

 

 

Bid Ask Spread Explained

Bid Defined

The Bid is the price an investor, trader, or dealer is willing to acquire a security for. The bid will specify both the price that the buyer is willing to buy the security and the amount to be purchased.

Ask Defined

The ask is the opposite of the bid. The ask is the price an investor, trader, or dealer is willing to sell a security for. The sell will specify both the price that seller is willing to sell the security and the amount to be sold.

The Spread

The Spread is the difference between the highest price a trader is willing to buy a security and the lowest price one is willing to sell a security. If the bid for the stock is $10 and the ask is $12 then the bid would be $2 which is not a good thing and I will elaborate more on that below.

Why is this important?

The Bid/Ask spread isn’t displayed on a stock quote because its looks cool it’s there for a very important reason. By looking at the spread one can determine how liquid a certain stock is. If the spread is extremely small that means the stock is very liquid and traders can buy and sell comfortably. If the spread is very large the stock is said to be illiquid meaning the ability to buy and sell shares would be quite difficult since the amount buyers are looking to buy the stock is a long ways away from what sellers are looking to sell the stock. Now some spreads may be only $.01 or less which is a very small amount but when you are dealing with penny stocks this can be a huge spread. We recommend staying away from stocks with low volume high spread because you may be stuck with 10000 or more shares with no one to sell them to. PennyStockLocks tends to deal with stocks that trade on a high volume daily so we recommend subscribing to our always FREE newsletters for up to the minute alerts on stocks that really move.

 

 

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