Definition
The bid-ask spread is the difference between the bid, the best price a buyer is currently willing to pay, and the ask, the lowest price a seller will currently accept. A trader buying at the market pays the ask; a trader selling at the market receives the bid.
The spread is a hidden transaction cost. Crossing it once on entry and again on exit means a position must move in the trader's favor by the full round-trip spread before it breaks even.
Why it matters
How it works
Market makers quote both sides and earn the spread as compensation for providing liquidity and bearing inventory risk. Heavily traded options on large stocks show narrow spreads of a few cents, while illiquid contracts can show spreads of a dollar or more. A disciplined trader works orders between the bid and ask rather than accepting the quoted ask outright, and avoids strategies whose edge is smaller than the cost of crossing the spread twice.