Glossary Term

Bid/Ask Spread

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In trading, every asset mostly comes with two prices. The highest price a buyer is willing to pay (the bid), and the lowest price at which a seller is willing to sell (the ask). The current price is simply the price of the last deal that was made between a buyer and a seller. Obviously, buyers would like to buy for cheaper and sellers would like to sell for more, so there’s always a difference between the highest buy and the lowest sell. This difference is referred to as the bid/ask spread, or just the spread. It’s important to remember that a trader who wants to buy gets the best sell price (ask), and a trader wishing to sell gets the best buy price (bid). This means that if you were to buy and then immediately sell, you would be at a small loss because when you bought you received the best ask price (remember, sellers always want to earn more money for what they’re selling), and when you sold you received the best bid price (buyers still want to pay less for what they’re buying). When trading, your first objective is to beat this spread because you cannot start making profits until you do so.

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