Bid, Ask and the Spread
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In short
There is no such thing as "the price" of a security at a given moment. There are two prices, and which one applies to you depends on which side of the trade you are on.
Scope. This article explains what the two quoted prices are, what the gap between them is, and why the same gap means very different things at different price levels. MarketClue publishes no threshold for an acceptable spread and characterises no security as cheap or expensive to trade. MarketClue accepts, routes and executes nothing. Prices are small non-canonical illustrative figures describing no actual security. United States market structure, checked 17 August 2026.
The bid is the highest price anyone is currently offering to buy at. The ask is the lowest price anyone is currently offering to sell at. A buyer pays the ask; a seller receives the bid. The gap between them is the spread, and the halfway point is the midpoint — a useful reference that nobody actually trades at.
What the spread is
The spread is the price of immediacy, as What Happens When You Place an Order established. Somebody is standing ready to take the other side of a trade at any moment, and the spread is what they earn for it.
A single trade crosses half the spread. Buying at the ask means paying the midpoint plus half the spread; selling at the bid means receiving the midpoint less half. A round trip — in and out — crosses the whole spread, which is why the full spread is the right figure to think about for anything that will eventually be sold.
Why the same spread is not the same cost
Spreads are quoted in currency and paid in proportion, and that mismatch is the most commonly missed point in this subject.
| Price of the security | Spread | Spread as a share of price | Cost of a 100-share round trip |
|---|---|---|---|
| $4.00 | $0.04 | 1.0000% | $4.00 |
| $10.00 | $0.04 | 0.4000% | $4.00 |
| $40.00 | $0.04 | 0.1000% | $4.00 |
| $100.00 | $0.04 | 0.0400% | $4.00 |
| $400.00 | $0.04 | 0.0100% | $4.00 |
Worked example — identical in dollars, a hundredfold apart in what matters. Every row costs exactly $4.00 for the same 100 shares. As a share of the money committed, the cost ranges from 1.0000% down to 0.0100% — a factor of one hundred between the cheapest and dearest rows, with nothing different about the spread itself. The reason is that the spread is fixed in cents while the sum at risk scales with the price. So a spread quoted in currency tells a reader almost nothing until it is divided by the price, and comparing two securities' spreads in cents compares nothing at all. This portal shows spreads as reported and applies no threshold to either form. Figures are illustrative and describe no actual security.
The floor nobody chose
Prices move in discrete increments, and in United States equities the standard increment for most securities priced at a dollar or more is one cent. That imposes a minimum possible spread of one cent — and because the relative cost of a cent depends on the price, the smallest spread the structure permits is not the same everywhere. (A rule amendment adopted in 2024 introduced a half-cent increment for a subset of the most actively quoted securities; the one-cent floor described here remains the standard for the majority, and which increment applies to a given security is a matter of the current rule rather than of this article.)
| Price of the security | Smallest spread the increment allows | As a share of price |
|---|---|---|
| $1.00 | $0.01 | 1.0000% |
| $4.00 | $0.01 | 0.2500% |
| $10.00 | $0.01 | 0.1000% |
| $40.00 | $0.01 | 0.0250% |
| $100.00 | $0.01 | 0.0100% |
| $400.00 | $0.01 | 0.0025% |
Worked example
What that table establishes, and it is structural rather than behavioural. A low-priced security cannot have a proportionally narrow spread, however active it is, because the increment will not divide any finer. At $1.00 the tightest possible market is a 1.0000% spread; at $400.00 it is 0.0025%. So part of the difference in trading costs between securities is not about liquidity, competition or interest at all — it is arithmetic imposed by the tick. This portal draws no conclusion about which securities to trade or avoid, and notes only that a reader comparing costs should know that some of the difference was decided by the increment before any participant did anything.
Why spreads differ beyond the tick
Above that floor, four things widen a spread and all of them are about the person supplying immediacy rather than about the security.
How much uncertainty they face. A supplier of immediacy takes on inventory they may not want; the more the price could move before they can offload it, the more they require.
How much activity there is. Where trades are frequent, inventory is held briefly and the required compensation falls.
How many suppliers compete. The spread is a price, and prices fall when more parties offer the same service.
How likely the counterparty is to know more. This is the adverse-selection point from Limit Orders, seen from the professional side — the risk of trading with someone better informed is priced into what the supplier charges everyone.
What it costs over a year
The spread is charged per transaction, so its annual weight depends entirely on how often someone transacts.
| Round trips a year | At a 0.10% spread | At a 1.25% spread |
|---|---|---|
| 1 | 0.10% | 1.25% |
| 4 | 0.40% | 5.00% |
| 12 | 1.20% | 15.00% |
| 26 | 2.60% | 32.50% |
| 52 | 5.20% | 65.00% |
| 250 | 25.00% | 312.50% |
The bottom rows are not predictions and not recommendations against anything — they are what multiplication does to a per-transaction cost. The comparison worth holding is that the canonical equity risk premium used throughout this portal is 5.00% a year.
Frequently asked
8 questions
Why are there two prices?
Because the bid is the highest price anyone is offering to buy at and the ask is the lowest anyone is offering to sell at. A buyer pays the ask, a seller receives the bid, and the midpoint between them is a reference nobody actually trades at.
What is the spread for?
It is the price of immediacy. Somebody stands ready to take the other side at any moment, and the spread is what they earn for doing so.
Do I pay the whole spread?
Half of it on each transaction, so the whole spread across a round trip. The full spread is the right figure for anything that will eventually be sold.
Is a four-cent spread cheap?
Unanswerable as asked. Four cents is 1.0000% of a $4.00 price and 0.0100% of a $400.00 price — a hundredfold difference in cost for an identical spread. A spread quoted in currency tells you almost nothing until divided by the price.
Why can't a cheap stock have a tiny spread?
Because prices move in discrete increments, and the standard increment for most US equities is one cent. At $1.00 the tightest possible spread is 1.0000%; at $400.00 it is 0.0025%. Part of the cost difference between securities is arithmetic imposed by the increment, not liquidity.
What widens a spread above that floor?
Four things, all about the party supplying immediacy: how much price uncertainty they face while holding inventory, how frequently trades occur, how many suppliers compete, and how likely the counterparty is to be better informed.
How much does the spread cost over a year?
It depends entirely on transaction frequency. At a 0.10% spread, 26 round trips cost 2.60% of capital and 250 cost 25.00%; at a 1.25% spread the same counts cost 32.50% and 312.50%.
Is that an argument against transacting often?
The figures are what multiplication does to a per-transaction cost, not a recommendation. The comparison worth holding is that the canonical equity risk premium used in this portal is 5.00% a year.
References
Educational and informational only — not investment advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the possible loss of principal. Worked examples use fictional companies and figures.