Bid-Ask Spread
The bid-ask spread is the difference between the bid price and the ask price of a security or asset. The bid price is the highest price that a buyer is willing to pay for a security, while the ask price is the lowest price that a seller is willing to accept. The bid-ask spread is a key indicator of liquidity in the market, as it reflects the willingness of buyers and sellers to transact at current prices. The narrower the spread, the more liquid the market is considered to be.
History of the Term
The term “bid-ask spread” has been used since the early days of stock trading. It was first used in the late 19th century when the New York Stock Exchange (NYSE) was established. The NYSE was the first organized stock exchange in the United States and it was the first to use the bid-ask spread as a way to measure liquidity. Since then, the term has been used in many different markets, including the foreign exchange market, commodities markets, and the bond market.
Comparison Table
| Market | Bid-Ask Spread |
|---|---|
| NYSE | 0.01-0.02 |
| Foreign Exchange | 0.0001-0.0005 |
| Commodities | 0.01-0.05 |
| Bond Market | 0.01-0.02 |
Summary
The bid-ask spread is an important indicator of liquidity in the market. It is the difference between the bid price and the ask price of a security or asset. The narrower the spread, the more liquid the market is considered to be. The term has been used since the late 19th century when the New York Stock Exchange (NYSE) was established. It is now used in many different markets, including the foreign exchange market, commodities markets, and the bond market. For more information about the bid-ask spread, you can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Market Liquidity
- Bid Price
- Ask Price
- Market Maker
- Order Book
- Price Discovery
- Market Depth
- Volatility
- Price Action
- Market Efficiency
