What Is a Bid-Ask Spread?

Refers to the difference between the price at which a market maker (a securities dealer specializing in the purchase and sale of financial products and a responsibility to maintain market activity) is willing to buy and sell such assets

Bid-ask spread

The asking price is higher than the bid amount.

Under the auction trading system, investors place entrusted trading instructions (also called orders) to brokers to express their willingness to trade, and the latter executes them on their behalf. The main elements of transaction commission include: buying and selling direction, buying and selling price, buying and selling quantity, and buying and selling time. Limit commission and market price commission are the two main types of commission.

The limit price entrusted investor not only specifies the quantity but also the price when submitting the limit order, and the transaction price must be higher than the specified price. The advantage of a limit order is that it can control the transaction price, but the order cannot be executed immediately. Investors will face the risk that the stock price will not be executed due to reverse changes in the stock price.

Unlike the limit order, investors only specify the quantity and not the price when submitting the market price order. After receiving the order, the broker executes this at the fastest speed and at the best price on the market at the time. Commissioned. Since the principle of price priority is followed in most auction trading markets, the market price entrustment ranks first in the order of price, eliminating the risk of untransaction. However, during the period from the time the investor submits the commission to the execution of the commission, the valuation may change significantly, the actual transaction price may deviate greatly from the investor's expectations, and the investor will face uncertainty in the transaction execution price.

In a centralized continuous trading market, the investor's limit order will first be sorted according to the principle of price priority to form a limit order book. When the market enters a market order or a market-based limit order (referring to the purchase price setting) In order to be equal to or higher than the best selling quote in the current market, the selling price is set to be equal to or lower than the best buying quote in the current market so that the transaction can be executed immediately.) Price commissioned transactions. Therefore, the limit order provides liquidity for other investors' transactions, and the investor who submits the market price order consumes liquidity.