Risk Management
Spread — Definition & Example
The difference between the best bid (buy) price and the best ask (sell) price — the immediate cost of round-tripping.
The bid-ask spread is what market makers charge for providing liquidity. A tight spread (1-2 ticks) means you can enter and exit cheaply; a wide spread (10+ ticks) means you lose meaningful value just to enter. Spreads widen during news, low-liquidity hours, and in less-traded instruments. Always check spread before entering a position — over many trades, a 0.5% spread on round-trip is often larger than commissions.
Example
Stock bid ₹499.50, ask ₹500.50. Spread = ₹1 (0.2% of price). To break even on a ₹500 buy, the price must rally to ₹500.50 just to recover the spread cost.
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