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Reading a business

Lesson 83 · Written for kid, teen, and little

The Bid, the Ask and the Spread

The gap between the buying price and the selling price quietly costs you money.

The idea

When you trade a stock there are really two prices at the same time. The bid is the highest price a buyer will pay right now, and the ask is the lowest price a seller will accept right now. The gap between them is called the spread. Because you normally buy at the ask and sell at the bid, that little gap is a cost you pay without ever getting a bill for it. 🪙

A

Words to know

5

bid

The highest price a buyer is willing to pay right now. Someone shouting 'I will pay $49.98'.

ask

The lowest price a seller is willing to take right now. Someone answering 'I will sell at $50.02'.

spread

The gap between the bid price and the ask price. Bid $49.98, ask $50.02, so the spread is $0.04.

market maker

A firm that quotes prices at which it is willing to buy and sell. A $49.98 purchase followed by a $50.02 sale has a $0.04 gross spread before costs; it also takes trading risk.

limit order

An order where you name your own price instead of taking whatever is offered. Say $49.99 and wait rather than paying $50.02.

Try it — no accountTrue or false

True or false about the bid and the ask?

Card 1 of 4

You usually buy at the ask price and sell at the bid price.

Swipe the card — or tap.

In the full lesson

  1. 1True or false
  2. 2Put it in order
  3. 3Make the call

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