Erlene Blackburn
FiatVisions Limited
The difference between the bid price and ask price of a market asset is called the bid-ask spread. Furthermore, it is the differential between the highest price the buyer is willing to pay and the lowest price the seller is ready to take. The seller receives the bid price while the buyer gets the ask price.
Tell me more about bid-ask spreads.
Two people are involved in a trading transaction: the trader or price taker and the market maker or counterparty. Market makers sell securities at a specific price called the ask price and bids to buy securities at a particular price or bid price. Traders need to agree between these two given prices depending on whether they want to buy or sell.
The bid-ask spread
The spread is the difference if you subtract the ask and bid price. Other than commissions, this is how most brokers earn their fees when they process the orders. Others may say that they do not charge anything, but, in reality, there are hidden charges. Fiatvisions has a decent and honest spread in the market. Hence, when we talk about the term “crossing the spread,” this is what we are talking about.
Aside from the things we mentioned, the bid-ask spread tells us a lot about an asset’s supply and demand. A bid can stand for the demand while the ask can stand for the asset. As these two go further away from each other, the price action becomes a reflection of the supply and demand changes.
Wide bid-ask spreads?
The depth of the bid price and ask price have a significant effect on the spread. The spread widens when:
- There are lesser people who place limit orders to buy security because there are lesser bid prices.
- There are lesser people who place limit orders to sell.
So, always consider the bid-ask spread before a buy limit order to ensure that it will have a successful execution. Market makers can also widen the bid-ask spread since they know risks in the market. Some of them will try to take advantage of clueless people.
The bid-ask spread and liquidity
Every asset is different, especially in terms of liquidity. The bid-ask spread also tells us a lot about how liquid an asset is. The lower the spread, the higher the liquidity. Market makers provide liquidity for price takers who demand it. The world’s most liquid asset is currency since it has the smallest bid-ask spread (a percent’s one-hundredth). On the other hand, stocks with small capitals are not that liquid.
What are we looking for in a bid-ask spread?
Ensure that the securities you are getting involved with have the best bid-ask spreads having high liquidity. Ensure that you have a plan to make the best exit so you go home with nothing but hefty profits. Finally, look for securities with supply and demand friction that will make a great spread.
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Editors’ Picks
EUR/USD holds firm near 1.1850 amid USD weakness
EUR/USD remains strongly bid around 1.1850 in European trading on Monday. The USD/JPY slide-led broad US Dollar weakness helps the pair build on Friday's recovery ahead of the Eurozone Sentix Investor Confidence data for February.
GBP/USD holds medium-term bullish bias above 1.3600
The GBP/USD pair trades on a softer note around 1.3605 during the early European session on Monday. Growing expectation of the Bank of England’s interest-rate cut weighs on the Pound Sterling against the Greenback.
USD/JPY keeps the red below 157.00 on intervention risks
The Japanese Yen sticks to its modest intraday recovery gains against a broadly weaker US Dollar on the back of speculations that authorities will step in to stem weakness in the domestic currency. In fact, Japanese officials stepped up intervention warnings and confirmed close coordination with the US against disorderly FX moves. This, in turn, triggered an intraday USD/JPY turnaround from the 157.65 region, or a two-week top, touched in reaction to Prime Minister Sanae Takaichi's landslide win in Sunday's election.
Editors’ Picks
EUR/USD holds firm near 1.1850 amid USD weakness
EUR/USD remains strongly bid around 1.1850 in European trading on Monday. The USD/JPY slide-led broad US Dollar weakness helps the pair build on Friday's recovery ahead of the Eurozone Sentix Investor Confidence data for February.
USD/JPY keeps the red below 157.00 on intervention risks
The Japanese Yen sticks to its modest intraday recovery gains against a broadly weaker US Dollar on the back of speculations that authorities will step in to stem weakness in the domestic currency. In fact, Japanese officials stepped up intervention warnings and confirmed close coordination with the US against disorderly FX moves. This, in turn, triggered an intraday USD/JPY turnaround from the 157.65 region, or a two-week top, touched in reaction to Prime Minister Sanae Takaichi's landslide win in Sunday's election.
Gold remains supported by China's buying and USD weakness as traders eye US data
Gold struggles to capitalize on its intraday move up and remains below the $5,100 mark heading into the European session amid mixed cues. Data released over the weekend showed that the People's Bank of China extended its buying spree for a 15th month in January. Moreover, dovish US Fed expectations and concerns about the central bank's independence drag the US Dollar lower for the second straight day, providing an additional boost to the non-yielding yellow metal.
Cardano steadies as whale selling caps recovery
Cardano (ADA) steadies at $0.27 at the time of writing on Monday after slipping more than 5% in the previous week. On-chain data indicate a bearish trend, with certain whales offloading ADA. However, the technical outlook suggests bearish momentum is weakening, raising the possibility of a short-term relief rebound if buying interest picks up.
Japanese PM Takaichi nabs unprecedented victory – US data eyed this week
I do not think I would be exaggerating to say that Japanese Prime Minister Sanae Takaichi’s snap general election gamble paid off over the weekend – and then some. This secured the Liberal Democratic Party (LDP) an unprecedented mandate just three months into her tenure.
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