The Bid-Ask Spread
The spread is the price of immediacy, paid on every round trip. It is also the most reliable live read on how liquid a stock actually is.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- The spread is a real cost, paid twice on a round trip, before any commission.
- It widens with volatility, thinness and time of day, and it is widest outside regular hours.
- A spread in cents means little; as a percentage of price it is comparable across securities.
- Persistent wide spreads are a liquidity warning that no chart pattern overrides.
- The NBBO describes the best price available, not how many shares are available there.
MAD Academy Training Video · 0:45
The Cost You Pay Before You Are Right
The spread is the toll for immediacy, and it is charged on the way in and again on the way out.
This lesson is part of a Stock Alerts + Tools plan.
What it costs
If the bid is 20.00 and the ask is 20.10, a trader who buys at the ask and immediately sells at the bid loses ten cents per share having been right about nothing and wrong about nothing. That is half a percent, gone, before any commission.
spread % = (ask - bid) / midpoint x 100
- midpoint is (bid + ask) / 2, the conventional reference price
- expressing it as a percentage is what makes a $4 stock and a $400 stock comparable
A one-cent spread on a $400 stock is 0.0025 percent and effectively free. A one-cent spread on a $0.40 stock is 2.5 percent, which is a larger cost than most traders' expected edge per trade. The two look identical on a quote screen and are not remotely the same thing.
| Price | Spread | Cost per round trip |
|---|---|---|
| $400.00 | $0.01 | 0.005% |
| $40.00 | $0.02 | 0.10% |
| $4.00 | $0.02 | 1.0% |
| $0.40 | $0.01 | 5.0% |
The bottom row is the one worth sitting with. A strategy on that security has to be right by more than five percent, on average, just to cover the cost of getting in and out once.
Why it widens
Whoever quotes both sides is taking on the risk of buying just before a fall or selling just before a rise. The wider the plausible range of the next few minutes, the more compensation that risk demands, and the wider the quote.
- Volatility: a fast-moving stock is quoted wider by every market maker at once.
- Thin trading volume: fewer participants means fewer competing quotes narrowing it.
- Time of day: widest at the open and in extended hours, narrowest mid-session.
- Pending events: spreads widen ahead of earnings and other scheduled announcements.
- News: a headline can widen a quote to many times its normal width within a second.
- Price level: sub-dollar securities are quoted in finer increments but proportionally much wider.
The uncomfortable consequence is that the spread is worst exactly when somebody most wants to act. A trader deciding to exit into a fast decline is paying the widest quote of the day, and that is a feature of how risk is priced rather than an unfairness.
The NBBO
Because US equities trade on many venues, the quote most screens display is the consolidated best across all of them. The NBBO is the highest bid and lowest ask available anywhere, and orders are generally protected from executing at a worse price than it.
The NBBO reflects the top of the order book only. It says what the best price is, not how many shares are available there. A tight quote for 100 shares is not the same as a tight quote for 50,000, which is why size matters as much as width.
It is also a snapshot that can be stale by the time a human reads it. In an active security the quote updates many times a second, and the number on a retail screen is a recent value rather than a currently available one.
Reading it as a liquidity signal
The spread is the cheapest available diagnostic for whether a stock can be traded at size. A name that consistently quotes several percent wide is telling a trader that entering and exiting will cost more than most strategies make, regardless of how attractive the chart looks.
It is also a fast sanity check on a screener result. A scan that surfaces an unfamiliar ticker with an appealing setup and a four percent spread has surfaced something that cannot be traded on the terms the setup implies.
The Deep Dive tab carries a liquidity and spread card that shows quoted width alongside off-exchange share for a company.
Liquidity and spread, on Deep Dive — for membersWhat the NBBO is and is not
The national best bid and offer is the highest bid and the lowest offer across every regulated venue, consolidated into a single quote. It is what a quoted spread refers to and it is a narrower thing than it appears.
- It reflects the best price at each venue and says nothing about how much size is available there.
- The best bid and the best offer can be on different venues, so no single venue may show that spread.
- It covers displayed quotes, so liquidity resting in undisplayed venues is not in it.
- It updates continuously, and a quote seen on a screen is a snapshot of something that has already changed.
The first point is the practically important one. A one-cent NBBO spread with a hundred shares behind it and a one-cent spread with fifty thousand shares behind it are the same quoted spread and completely different markets for anything but the smallest order.
This is why depth and quoted spread are separate measures. The spread describes the price of the smallest transaction; depth describes how far that price holds, and only the second one answers a question about size.