tf/beginners•Posted by u/newbie_investor•4 days ago

What exactly is the "spread" and why did my trade cost more than I expected?

I bought 50 shares of a small cap at $12.15 but the displayed price was $12.05. The $0.10 per share difference cost me $5 extra.

Apparently it's the "bid-ask spread." Can someone explain it simply?

Why is the spread sometimes wide and sometimes tight?
How do I avoid getting caught?
Does it change depending on the time of day?

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trader_mike·4 days agoedited

Think of the spread as the market maker's margin. The bid is the price they buy at, the ask is the price they sell at. The difference is their profit.

The more liquid a stock (AAPL, MSFT), the tighter the spread ($0.01). Less-traded small caps have wide spreads ($0.05-0.50).

Tip: ALWAYS use limit orders, never market orders on small caps.

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chart_wizard·4 days agoedited

And avoid trading at the open (9:30-9:45) and close (3:50-4:00). Spreads are wider at those times because of volatility.

options_queen·4 days agoedited

Something few people know: spreads also widen before and after earnings. I paid a $0.25 spread on a $15 stock the day before earnings. That's 1.6% lost instantly just to enter the position.

forex_sarah·4 days agoedited

FYI, in pre-market and after-hours the spread is often 5-10x wider than during regular hours. Be very careful if you trade outside regular session.