Bid, Ask, and Spread Explained

Bid-ask spread calculator

Use the current best quotes and your order size. The example starts at a $100.12 bid and $100.18 ask for 250 units.

Bid and ask in an order book

The best bid and best ask are the nearest opposing prices in the visible order book. They are quotes, not a guarantee that every unit in a large order will fill there.

The last trade can be above, below, or between the current quotes because the book can change after that trade. For the next immediate order, current executable quotes matter more than the previous transaction.

How to calculate the spread

With a $100.12 bid and $100.18 ask, the absolute spread is $0.06. The midpoint is $100.15, so the percentage spread is about 0.060%. Multiply the percentage by 100—or the unconverted ratio by 10,000—to express it as 6.0 basis points.

For 250 units, crossing the whole unchanged spread costs $15: $0.06 × 250. A one-way buy is commonly described as half the quoted spread relative to the midpoint, or $7.50 here. That midpoint estimate is useful for comparison, but the actual result depends on the fill.

How the spread becomes a cost

A market buy consumes sell orders beginning at the ask. Marked against the midpoint, the position starts down by roughly half the spread. Selling immediately consumes bids and completes the full quoted gap. Commission is added separately.

The SEC describes spread costs as indirect costs paid when buying at the asked price or selling at the bid. It also separates market impact: the price concession required to find enough opposite-side liquidity.

Tight vs wide spread

A tight spread places the best bid and ask close together. A wide spread leaves a larger gap. Compare instruments with percentage spread or basis points, because a $0.10 gap is small on a $1,000 asset and large on a $1 asset.

There is no fixed cutoff for a “good” spread across stocks, forex, crypto, options, and futures. Tick size, venue, trading session, volatility, available depth, and order size all change the comparison. A quote can look tight for one unit and still give a poor fill for 10,000 units.

Why spreads widen

• Less liquidity: fewer competing orders leave more space between buyers and sellers.
• Fast price movement: quotes are cancelled or moved while market makers manage inventory and information risk.
• Off-hours trading: fewer participants can mean less depth and wider quotes.
• Large order size: the best quote covers only part of the order, exposing worse prices behind it.
• Product structure: an option with a distant strike or an illiquid token can trade differently from its active underlying market.

FINRA notes that illiquid investments tend to have wider spreads, while also warning that a narrow spread alone is not a complete measure of liquidity.

Market orders, limit orders, and the spread

A market order seeks an immediate fill at the best available prices. The execution price is not guaranteed, especially when prices move or the order is larger than available depth. A limit order sets the highest buy price or lowest sell price you will accept.

A buy limit placed below the ask can avoid crossing the current spread, but another seller must accept it. If the market moves away, nothing fills. Price control and execution certainty are a trade-off, not a free way to remove cost.

Investor.gov states that a buy limit can execute only at its limit or lower and a sell limit only at its limit or higher. It also states plainly that a limit order is not guaranteed to execute.

Where spread fits in SignalTrack results

SignalTrack currently has 1,535 eligible closed signals from 32 tracked providers with enough information to calculate planned risk/reward. Those R-based results use published entry, stop, targets, and observed price movement. They are before spread, commission, slippage, and funding.

That boundary matters most near break-even. A signal at 0.02R before costs is not evidence of a profitable executable trade if its all-in costs exceed 0.02R. SignalTrack keeps the published plan auditable, but a trader must add venue-specific execution costs to evaluate a personal fill.

Four spread mistakes

1. Using the last price as if it were the next executable buy and sell price.
2. Calling zero commission “free” while ignoring spread and slippage.
3. Comparing absolute cents across assets with very different prices.
4. Multiplying the best quote by a large order without checking available size and deeper levels.

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