Bid-Ask Spread
The gap between best bid and best ask — the toll you pay to trade immediately.
What it means
Cross the spread on entry, cross it again on exit: a round trip costs one full spread before commissions. On a $2 small-cap with a 2-cent spread that is 1% — an edge smaller than the spread does not exist in practice.
Spreads are not constant: they blow out at the open, around halts, and in fast moves — exactly the moments naive strategies most want to trade. Measuring spread as a percent of price and gating entries on it is basic hygiene for an automated system.
Why traders care
- Sets the minimum edge a strategy must clear to be net profitable.
- A widening spread is itself a signal — liquidity providers stepping back.
In a TraderWe strategy
if (Ask1 - Bid1) / Price < 0.003 and ChangePct > 3:
Buy()Only take the momentum entry when the round-trip toll is under 0.3%.
Related terms
Educational content, not investment advice. Engine details describe how TraderWe computes this value; other platforms may define it differently.