Bid/Ask spread and liquidity

Bid, Ask & spread

When you look at a live quote you’ll see two prices: the bid (highest price buyers are offering) and the ask (lowest price sellers are willing to accept). The spread is the gap between them. If the bid is €10.00 and the ask is €10.04, the spread is €0.04. 

That gap is a real trading cost: buy at €10.04 and you are immediately €0.04 away from the bid.

Liquidity means how easily you can trade without moving the price much. Highly liquid shares or ETFs have lots of buyers and sellers, high volume, and usually small spreads. Less liquid instruments have fewer orders in the market, so spreads are wider and larger orders may only fill in parts or at worse prices.

Why it matters: tighter spreads and better liquidity usually mean more predictable fills and lower costs. Wider spreads increase the chance your market order fills at an unexpected price and your limit order may sit unfilled.

When spreads widen: around market open and close, during pre or after hours, on news, in volatile markets, and in thinly traded or niche instruments. Very large orders can also push the price because there isn’t enough depth.

Simple example: you buy 500 shares at an ask of €10.04 while the bid is €10.00. The immediate spread cost is about €0.04 per share, or €20 in total, before fees. If the market stays the same, you would need the bid to rise toward €10.04 to break even.

Practical tips: check the spread and recent volume before you trade, consider a limit order for price control, and be extra careful in low-liquidity or out-of-hours sessions.