What is the spread?

Spread: The difference between the price at which you can buy and the price at which you can sell. A hidden cost, especially for small or thinly traded assets.

On the market there are always two prices. The ask is what you pay when you buy. The bid is what you get when you sell. The difference is called the spread.

You do not see the spread as a separate cost, but you do pay it. The more often you buy and sell, the more it adds up.

For big, busy shares and funds the spread is usually small. For small funds, little trading or outside normal market hours it can be much larger.

Example
A fund has a bid of 9.95 euros and an ask of 10.05 euros. You buy 100 units for 1,005 euros. If you sell them straight away, you get 995 euros. You have lost 10 euros, about 1 percent, just from the spread.

Watch out
With crypto and small investments the spread can grow a lot, especially when prices move fast. A limit order stops you from getting a much worse price than you expected.

Read more in the guide What investing really costs: from spread to tax.

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