What is spread?

Spread is the difference in price between an ask and a bid.

Spreads are larger or smaller depending on volatility (how much the price is moving) and demand for an asset. Spreads allow market makers to make money from trades settled at market prices. If Peter buys 100 shares for a £3 ask price in XYZ Limited, he pays £300 in exchange for 300 shares. If he decides to sell the shares back at the same price, he would sell the 300 shares for the bid price at £2.95. This would mean he gets a return of £295 and loses £5, which would be paid to the market maker.

Spreads are typically set at percentages such as 0.02%. For assets that are in higher demand, spreads tend to be much smaller as prices are typically higher too, so the percentile rate can be maintained.

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