Which price do I pay when I buy a stock?

With a market order you pay the ask price, the lowest price a seller will accept. With a limit order you set your own maximum, and the order fills only if a seller meets it.

Why is the spread so big on some stocks?

Low trading volume, high volatility and a low share price all widen spreads. Fewer participants means market makers face more risk holding the shares, so they demand more compensation.

Is the spread a fee my broker charges?

No. The spread is the natural gap between buyers and sellers in the market. Your broker may route orders to a market maker that profits from it, which is how many zero-commission brokers earn revenue.

Bid-Ask Spread Explained: What It Costs You to Trade

Open any quote and you will see a stock has not one price but two. The bid is the highest price a buyer is currently willing to pay. The ask, sometimes called the offer, is the lowest price a seller is willing to accept.

The difference is the spread, and it is the quiet fee you pay on every trade, whether or not your broker charges a commission.

Reading a quote

A quote might read: bid $99.98, ask $100.02. If you buy at market, you pay the ask, $100.02. If you immediately sell at market, you receive the bid, $99.98. You lost four cents a share in an instant, and nobody charged you a commission.

The spread on giant, heavily traded stocks like Apple is often a single cent. On small companies or thinly traded ETFs it can be tens of cents or several percent of the price.

Why the spread exists

Market makers provide the constant quotes that let you trade at any second. They buy at the bid and sell at the ask, and the spread is their compensation for taking on inventory and the risk that prices move against them.

The wider the uncertainty, the wider the spread. Spreads blow out during news events, at the open, and in illiquid names, because market makers demand more to take on more risk.

Size and depth

Each quote comes with a size: how many shares are available at that price. A bid of $99.98 x 500 means someone will buy 500 shares at that price. A large market order can consume that and continue to worse prices, an effect called slippage.

Level 2 data shows the full ladder of bids and asks below and above the best quote. Most long-term investors never need it, but it explains why big orders in small stocks move the price.

How to keep the cost down

Use limit orders. A buy limit at $100.00 in the example above sits between the bid and ask and may fill at a better price than the ask, saving you part of the spread.

Avoid trading in the first and last minutes of the session when spreads are widest, and check the spread before trading anything unfamiliar. For most investors in large stocks and broad ETFs, the spread is a rounding error; for small caps it is a real expense.

Bid, Ask and Spread Explained: The Hidden Cost of Every Trade