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Bid/ask Spread

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The bid/ask spread is the difference between the price sellers are asking for and the price that buyers are willing to pay. There is a bid/ask spread in virtually any freely-traded market. For example, if the last trade on XYZ Corp. was $10.00, the current ask price might be $10.05 and the bid $9.95. This would create a bid/ask spread of 10 cents, the difference between $10.05 and $9.95. In a fast-moving market the bid/ask spread often increases. If the perceived value of a stock is considerably higher or lower than its current price the bid/ask spread may also widen. The difference in the bid/ask spread is the profit margin for the broker or other intermediary involved in the transaction.



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