The spread is the difference between the bid and ask prices. It affects the price you pay to enter and the price available when you exit.
The idea
The bid is the quoted price at which you can sell and the ask is the quoted price at which you can buy. The spread is the difference between them. Spreads can be fixed or variable, depending on the provider and product, and may widen around news, when liquidity is low, or during fast markets. Position size and the instrument’s contract rules determine its monetary effect.
Apply the idea
Suppose an instrument is quoted at 100.00 bid and 100.05 ask. A hypothetical purchase at the ask followed immediately by a sale at the unchanged bid would lose 0.05 per unit before any other costs. For 10 units, that difference is 0.50. Actual fills may differ from the displayed quotes.
Key takeaway
Check both sides of the quote and the position size. A wider spread means price generally needs to move further in your favour to cover that difference.
