Bid-ask spread
The bid-ask spread is the gap between the highest price a buyer will pay (the bid) and the lowest a seller will accept (the ask). Crossing it is a cost of every market order.
How Bid-ask spread is calculated
Spread = ask - bid. As a percent, spread % = (ask - bid) / midpoint. If the bid is 99.95 and the ask is 100.05, the spread is 0.10, or 0.10 percent. A round trip (buy then sell) with market orders costs about one full spread, before fees.
How it is read
Tight spreads mean a liquid market. Spreads widen at the open, after hours, around news and in small or new assets.
Common mistakes
- Testing a fast rule with a price that ignores the spread.
- Comparing spreads in price units rather than percent.
- Assuming a quoted spread holds for large orders. Depth matters as well.
What Tickfloor tested
Tickfloor has not published a backtest of a rule built only on Bid-ask spread. It describes or manages something rather than giving a signal, so there is no strategy to score. It still shapes how any tested rule should be read.
Lessons that cover it
- Liquidity: why some things cost more to trade
- How your order actually gets filled
- The shape of a trading day, plus rebalance and expiry days
- Costs inside a backtest
- The hidden costs: spreads, slippage and fees
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.