Bid-Ask Spread
The gap between the best buy price and the best sell price.
What is Bid-Ask Spread?
The bid is the highest price a buyer will pay; the ask (or offer) is the lowest price a seller will accept. The spread is the market maker's compensation and a direct, often invisible, transaction cost. Wide spreads signal illiquidity.
Bid-Ask Spread: a worked example
$10.00 bid / $10.10 ask - a $0.10 spread, or 1% round-trip cost on a $10 stock.
More terms in Positions & Trade Mechanics
Long Position
You own the asset and profit when its price rises.
Short Position (Short Selling)
You borrow shares, sell them, and profit if the price falls.
Margin
Borrowing from your broker to buy securities, using the account as collateral.
Cash Account
An account where every purchase is paid for in full, no borrowing.
Leverage
Using borrowed money to increase exposure relative to your own capital.
Initial Margin (Reg T)
The equity you must put up to open a margin position - generally 50%.
Maintenance Margin
The minimum equity percentage you must keep in a margin account.
Margin Call
A demand to add cash or securities after equity falls below maintenance.