What is the bid-offer spread?
The bid-offer spread, also known as the bid-ask spread, is just another way of talking about the spread applied to an asset’s price.
The bid-offer spread is a representation of the supply and demand for an asset. If the bid and offer prices are close together, it is considered a tight market, which means that there is a consensus between buyers and sellers on how much the asset is worth. If the spread is wider, it means that there is significant difference in opinion.
The bid-ask spread can be impacted by a range of factors, including:
- Liquidity. This refers to how easily an asset can be bought or sold. As the liquidity of an asset increases, the bid-ask spread usually tightens
- Volume. This is a method of reporting the quantity of an asset that is traded daily. Assets that have a higher trading volume will often have narrower bid-offer spreads
- Volatility. This is a measure of how much the market price changes in a given period. During periods of high volatility, when prices change rapidly, the spread is usually much wider