Comments on: What is the Bid-Ask Spread?

By: GM

GM — Fri, 16 Oct 2009 18:23:30 +0000

Good article. How about another one that lays out step by step how to buy and sell options using a broker’s web site.

By: Robert

Robert — Thu, 15 Oct 2009 22:03:55 +0000

Never heard of the bid-ask spread, but interesting article nevertheless.

By: Bill

Bill — Wed, 14 Oct 2009 01:25:07 +0000

Not necessarily true. Example:

You want to buy 5 shares of XYZ stock at $10 a share. A seller is willing to sell you 5 shares of XYZ stock at $9.98 a share. You get your 5 shares of XYZ stock, the seller gets their money, and the broke gets the 2 cent difference.

By: Steve

Steve — Wed, 14 Oct 2009 01:15:00 +0000

This is true if you’re using a market order. However, if you are setting a limit order at the current end of the spread, then someone else can “pay” the spread cost. For example, if bid is 10 and ask is 10.01, you can set a buy limit at 10, which won’t get immediately filled like a market order. However, if someone else then comes and puts in a sell order at market, they could sell it to you at 10 without changing the bid-ask. Thus, you just bought at 10 and can still sell at 10.

As a basic concept, yes, but you simplified it a little too much.

By: BG

BG — Tue, 13 Oct 2009 22:23:56 +0000

Not sure I understand the “market maker”’s role, but there is no such thing as a free-lunch, so I bet he gets burned every now and again (if the markets were “fair”).

Also, if I call my broker and tell him to sell XX shares for $10, there really is no “spread” that I’ll lose, because I set the price right? The only way my transaction goes through is if someone comes up to meet my price (and I’m only out the brokerage fee).