Glossary

The spread, in finance, refers to the difference between two prices, rates, or values. It is commonly used in the context of the bid-ask spread, which is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for a financial instrument. 📊

Spreads are often used as an indicator of liquidity in financial markets, with smaller spreads suggesting higher liquidity.

Example: If a stock's bid price is £20, and its ask price is £20.10, the spread would be £0.10.

Fun fact: Market makers, who facilitate trading by constantly buying and selling securities, often earn their profits from the spread. They buy at the bid price and sell at the ask price, profiting from the difference between the two prices. This is why market makers prefer wider spreads, as they can potentially earn more from each transaction.