facebookWhy is there a difference between the price which you pay for the stock and the price you receive of the stock? For eg. i pay $25.10 but my stock price is $25 due to this thing called bid ask spread? - Seedly

Anonymous

22 Nov 2019

General Investing

Why is there a difference between the price which you pay for the stock and the price you receive of the stock? For eg. i pay $25.10 but my stock price is $25 due to this thing called bid ask spread?

Discussion (2)

What are your thoughts?

Learn how to style your text

Kelly Trinh

22 Nov 2019

Backoffice technical at financial services firm

Perhaps illustrating by your example will help:

If you don't have the shares and you want to buy - you are "bidding" a price (like an auction) - that is the "bid" price; it is going to be low coz you want to pay as less as possible

If you have the shares and you want to sell - you are "asking" for a certain price - that is the "ask" price; it is going to be high coz you want to make as much as possible
In a normal market there is going to be a small gap - this is the "bid ask spread". No transactions are happening because there is a gap in the price. For your example the bid is $25 and the ask is $25.10 for a bid ask spread of 10c (25.10 less 25.00)

Eventually someone will want to actually transaction - so they will "cross the spread" and pay the price the other side wants. So suppose buy side tired of waiting and will transaction at 25.10 - in this case both sides swap the shares at the price of $25.10 (note no gap - each side will receive 25.10 less brokerage)

Hope that helps and shout out if need further clarification.

Bid-ask spread is the difference between the bid and ask price due to demand and supply respectively. in your case bid price is 25.00, and ask price is 25.10

Write your thoughts