The bid-ask spread is the difference between the best ask and the best bid available in the market at a point in time.

The bid-ask spread is the difference between the best ask and the best bid available in the market at a point in time. The best bid is the highest displayed price a buyer is willing to pay. The best ask is the lowest displayed price a seller is willing to accept. A market taker who buys immediately trades at the ask. A market taker who sells immediately trades at the bid. The spread is therefore the immediate cost of crossing from one side of the market to the other.

In practical terms, if the best bid is 100.00 and the best ask is 100.02, the bid-ask spread is 0.02. A trader who buys with a marketable order pays 100.02. If that trader could instead transact at the bid, the price difference is 0.02. The same logic applies in reverse for an immediate seller. This is why the spread is often treated as the first execution cost paid by liquidity takers before any later price movement is considered.

Spread can be expressed in price units, ticks, or basis points relative to the midprice. The midprice is the average of the best bid and best ask. Using the same example, the midprice is 100.01. A spread of 0.02 around that midpoint is about 2 basis points. This normalization helps compare spread across instruments with different price levels.

The mechanism is straightforward. A limit order posted to buy joins the bid side of the book. A limit order posted to sell joins the ask side. These standing orders supply liquidity. A marketable order consumes that liquidity by trading against the best available quote. Because the best ask is above the best bid, a taker pays the gap to obtain immediate execution. That gap is the bid-ask spread.

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