The Spread is the difference between the best bid and best ask price, representing the cost of immediate execution.
Spread Examples
| Stock Type | Bid | Ask | Absolute Spread | % Spread |
|---|---|---|---|---|
| FTSE 100 (liquid) | 500.0p | 500.1p | 0.1p | 0.02% |
| Mid cap | 100.0p | 100.5p | 0.5p | 0.50% |
| Small cap | 50.0p | 51.0p | 1.0p | 1.98% |
Percentage spread = (Spread ÷ Mid-price) × 100, where mid-price = (Bid + Ask) ÷ 2
What Spreads Indicate
Narrow spreads mean:
- High liquidity and active trading
- Many competing buyers and sellers
- Low cost of immediate execution
Wide spreads suggest:
- Low liquidity and infrequent trading
- Higher risk for market makers
- Greater cost to trade immediately
When Spreads Widen
| Condition | Reason | Typical Impact |
|---|---|---|
| High volatility | Increased risk for market makers | 2-5x normal spread |
| Market stress | Major news or crisis events | 5-10x normal spread |
| Outside hours | Reduced participants | 3-4x normal spread |
| Low volume | Less competition | Varies widely |
Platform Comparison
- SETS: Competitive spreads from multiple participants, typically tightest
- SETSqx: Market maker spreads with regulatory maximums
- AIM: Generally wider than Main Market equivalents