Breaking Down the Bid, Ask, and Spread on a Stock:
Stock prices fluctuate throughout the day based on basic supply and demand principles. The Bid is the highest possible price someone is willing to pay for a stock. The Ask is the lowest possible price someone is willing to accept for the sale of a stock. The difference between the bid and the ask is simply known as The Spread.
A good way to think about this is to consider the example of buying a house. Let’s say the seller lists their house at a price of $500,000 – that would be the ask. But the highest offer they receive from a buyer is $400,000 – that would be the bid. In this particular example, the spread would be $100,000 ($500,000-$400,000) – the difference between the bid and the ask. It’s possible that the buyer and seller might meet somewhere in the middle of those two prices, which oftentimes happens with stocks, and that’s where a sale would execute. Typically, stocks with high liquidity have more competitive/tighter bid-ask spreads. When a stock has a relatively large spread, it’s usually a good idea to stay away from Market Orders and use Limit Orders instead.