Share market basics
The difference between the best bid and the best ask price; a hidden cost of every trade that is small in liquid stocks and large in illiquid ones.
The spread is the gap between the highest price a buyer is bidding and the lowest price a seller is asking. It is the cost of trading immediately, because a market buy pays the ask and a market sell receives the bid. For SBI the spread is often five or ten paise on an ₹800 stock, close to nothing. For an out-of-the-money option quoted ₹4.50 bid and ₹5.50 ask, the spread is a full rupee, more than 20% of the price; buying and selling at market immediately loses that rupee per unit, or ₹75 per Nifty lot before other costs. Spreads widen at the open, during news and in panics, and they widen permanently in illiquid stocks. Scalpers and frequent traders are hurt most, since they cross the spread many times a day. Checking the spread before entering is a two-second habit that saves money.
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