What Is A Bid-Ask Spread?

If you have ever looked at a share or ETF on an investing app and noticed two prices, you have probably seen the bid-ask spread without realising it.

The phrase sounds like trader jargon, but the idea is simple: the bid-ask spread is the gap between the buying price and the selling price.

This matters because investments do not always have one single price you can use for everything. There is usually a price someone is willing to buy at and a slightly different price someone is willing to sell at.

Nothing here is financial advice or a recommendation to buy anything. I’m just explaining the term in plain English for beginners. Investing puts your capital at risk and past performance is not a reliable guide to future results.

Quick answer: what is a bid-ask spread?

A bid-ask spread is the difference between:

• the bid price, which is the price someone is willing to pay to buy an investment from you
• the ask price, sometimes called the offer price, which is the price someone is willing to sell it for

So if an ETF has:

• bid price: 100p
• ask price: 101p

The bid-ask spread is 1p.

In plain English, if you bought at 101p and immediately sold at 100p, the spread is the gap you would cross.

Bid price vs ask price

The easiest way I remember it is this:

The bid price is the selling price

The bid is what buyers are currently offering.

If I already own a share or ETF and want to sell it, the bid price is the price I am more likely to receive before any platform-specific process or charges.

The ask price is the buying price

The ask is what sellers are currently asking for.

If I want to buy that share or ETF, the ask price is the price I am more likely to pay before any platform-specific process or charges.

Different apps may show this slightly differently, but the basic concept is the same.

A simple bid-ask spread example

Let’s say I am looking at an ETF.

The app shows:

The spread is:

£10.02 minus £10.00 = £0.02

That means the bid-ask spread is 2p per unit.

On one unit, that might look tiny. On a larger purchase, it becomes more noticeable because the spread applies to each unit bought or sold.

This does not mean the ETF itself has suddenly fallen. It simply means there is a small gap between what buyers are currently offering and what sellers are currently asking.

Why does the bid-ask spread exist?

The spread exists because markets need buyers and sellers.

At any moment, some people want to buy, some people want to sell and they may not agree on exactly the same price. The spread is the difference between those two sides of the market.

In very simple terms:

• if lots of people are trading something, the spread is often narrower
• if fewer people are trading something, the spread can be wider
• if markets are moving quickly, spreads can change
• if an investment is less liquid, spreads may be wider

Liquidity just means how easily something can be bought or sold without a big price impact. I explain that term separately here: what is liquidity?.

A huge, popular ETF will often have a tighter spread than a very niche share or fund. That is not guaranteed, but it is a useful beginner concept.

Why bid-ask spreads matter for beginners

For long-term investors, the bid-ask spread is usually not something to obsess over every day. But it is worth understanding because it is part of the real cost of buying and selling investments.

When I first started investing in ETFs, I was mainly focused on the fund name, performance chart and whether the app made it easy to buy. Over time, I learned that the small details matter too: fund charges, currency, platform fees, market hours and spreads.

Not because I want to turn investing into a full-time job, but because I want to understand what is happening when I press buy or sell.

For more beginner investing basics, I’d start with my wider guide here: Start here.

Bid-ask spreads and ETFs

ETFs, or exchange-traded funds, trade on a stock exchange during market hours. That means they behave a bit like shares when you buy or sell them through an investing app.

Because of that, ETFs can have bid-ask spreads.

For example, if I am looking at a broad global ETF, I might see a small gap between the buy and sell prices. With a more niche ETF, the spread might be wider, especially if fewer people are trading it.

That is one reason I like keeping things simple with ETFs. The more complicated or niche an investment becomes, the more details I need to understand before I feel comfortable with it.

You can read more ETF explainers here: ETF topics.

Bid-ask spreads and shares

Individual shares also have bid-ask spreads.

Large, heavily traded companies often have tighter spreads because there are usually plenty of buyers and sellers. Smaller companies can have wider spreads because there may be fewer people trading them at any one time.

A wide spread can make short-term buying and selling more expensive in practical terms. If the gap is large, the investment has to move further before you are even past the buy-sell difference.

That is one of the reasons I try not to get pulled into chasing fast-moving individual stocks. I have found that a slower, simpler approach suits me better.

Again, that is not advice. It is just how I think about my own behaviour and risk.

What does a wide spread tell you?

A wider bid-ask spread can suggest that an investment is less liquid or that the market is uncertain at that moment.

It might mean:

• fewer buyers and sellers are active
• the investment is more niche
• the market is moving quickly
• it is outside the most active trading period
• there is less agreement on the current fair price

A wide spread does not automatically mean an investment is bad. But it is a useful signal to slow down and understand what you are dealing with.

What does a narrow spread tell you?

A narrower spread usually means buyers and sellers are closer together on price.

This can make buying and selling more efficient because the gap between the two prices is smaller.

For beginners, a narrow spread is generally easier to understand because there is less difference between the visible buy and sell prices. But it still does not remove investment risk.

The value of shares and ETFs can go down as well as up, and past performance does not guarantee future returns.

Bid-ask spread vs fees

The bid-ask spread is not the same as a platform fee or fund charge.

A fee is usually something charged by a platform, broker or fund provider.

A spread is the difference between the current buying and selling prices in the market.

Both can affect the practical cost of investing, but they are not the same thing.

This is why I try to look beyond headline claims like “zero commission” and understand the full picture. Platform fees, FX fees, fund charges and spreads can all matter depending on what you are buying and how often you trade.

For anything platform-specific, always check the provider’s own latest information before relying on it.

Do long-term investors need to worry about bid-ask spreads?

I do not think bid-ask spreads need to become a beginner’s obsession.

If I am investing for years, the spread on a sensible long-term purchase is usually only one small part of the bigger picture. Things like diversification, risk, costs, behaviour and time horizon are more important to me.

But I do think beginners should know what the spread is, especially before buying more niche ETFs or individual shares.

Understanding the spread helps explain why an investment might show a tiny loss immediately after buying. It may simply be because the sell price is lower than the buy price at that moment.

My plain English summary

The bid-ask spread is the gap between the price you can sell at and the price you can buy at.

A simple way to remember it:

• bid = what buyers will pay
• ask = what sellers want
• spread = the gap between them

For ETFs and shares, spreads are normal. A smaller spread usually means the buy and sell prices are close together. A wider spread means the gap is larger, which can make trading more expensive in practice.

For me, this is one of those investing terms that sounds more intimidating than it really is. Once I understood it, it became another reason to keep things simple, avoid unnecessary trading and focus on understanding what I own.

If you want more beginner definitions like this, I’m building them out in the glossary section.

Final reminder

Nothing in this article is financial advice or a personal recommendation. I’m not telling you what to buy or sell.

Investing involves risk, your capital is at risk and you may get back less than you put in. Past performance is not a reliable guide to future results. Read more in my disclaimer.