Bid-Offer Spread Definition

What Is Bid-Offer Spread?

Bid-offer spread is a commonly used measure by market participants to gauge the liquidity of the market. The bid-offer spread is simply the difference between prices quoted to sell and the prices quoted to buy an instrument. The bid-offer spread is typically tighter in liquid markets and tends to be wider in illiquid markets. The difference in price paid is the liquidity cost, so it can be beneficial to buyers to understand the bid-offer spread relative to the market to optimize the transaction for maximum profit.