What is Bid-Ask Spread?
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%.