What is Bid-Ask Spread?

By Research Desk
about 4 years ago

The bid-ask spread is the difference between the bid price for a security and its ask price. It represents the difference between the highest price that a buyer is willing to pay (bid price) for a security and the lowest price that a seller is willing to accept for it (ask price).

E.g. Order Book of Infosys (on NSE on 16th Oct 2014 12.30AM)

Buy Qty.

Buy Price

Sell Price

Sell Qty.

40

3,908.95

3,909.00

4

22

3,908.80

3,909.05

18

1

3,908.75

3,909.50

1

19

3,908.60

3,909.75

6

23

3,908.55

3,910.00

10

50,352

Total Quantity

64,853

For Infosys, the bid price on NSE is Rs. 3,908.95 while ask price is Rs. 3,909.00. The difference between these 2 price quotes is the bid-ask spread which is 5 paise.

For thinly traded stocks (low liquid counters), the bid-ask spread can be very high, thus increasing the cost of trade.

Order Book of GVK Power (on BSE on 17th Oct 2014 11.40AM)

Buy Qty.

Buy Price

Sell Price

Sell Qty.

1,000

9.75

9.79

1,000

200

9.72

9.80

3,126

18,481

9.71

9.82

500

30,898

9.70

9.83

700

2,183

9.69

9.84

10,398

1,67,130

Total Quantity

1,29,187

For GVK Power, the bid price on BSE is Rs. 9.75 while ask price is Rs. 9.79. The difference between these 2 price quotes is the bid-ask spread which is 4 paise, which is quite high in percentage terms – 0.4%.

 

Popular Comments

No comment posted for this article.