Investor Glossary-spreadInvestor Glossary-spreadInvestor Glossary-spreadInvestor Glossary-spreadInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Spread

The HTML to link to this page
 

Spread can mean several different things to investors, depending on the nature of the investment. In the case of stocks or other assets, spread is the difference between the bid price and the ask price. The size of the spread is affected by the total number of shares trading outstanding, demand for the asset, and total trading volume.

In the case of options, spread refers to the act of purchasing a long call option and a short call option, or a long put option and a short put option; each option is then half of the spread. An option spread usually costs less and with lower risk, but has less profit potential than taking a long position outright.

In the case of commodity futures, spread can be the price difference between delivery months in a given market, or the price difference between different contracts or related contracts in a given market. Spread can refer to two strategies in the case of foreign exchange. In the first foreign exchange spread strategy, investors take a long position in one currency and a short position in another. For example, long the U.S. dollar and short the yen. In the second spread strategy, investors take a long and short position in the same currency, but in different months. For example, long the yen in March, short in April.

For fixed income securities, spread can mean the difference in yield between securities that have the same quality rating but different maturity dates, or the difference in yield between securities with the same maturity date but different quality ratings.

Finally, in underwriting, spread is the difference between what an underwriter charges the public for a new security and what the underwriter pays the issuer of that new security; if a security sells to the
for $50 a share, the underwriter may pay the issuer $49 and keep the $1 per share spread.



Rate this spread definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: implied volatility, EBITDA, APR, liquidity ratio, labor relations, VIX, current ratio, 1031 exchange, balance sheet, ex-dividend, FTSE, risk management, Zero Cost Collar, retained earnings, dividends payable, stock market close, phantom income, diluted share, debt service coverage, required rate of return, 1035 exchange, command economy, inflation, 144a, real GDP, annual return, limit order, deferred tax, stock split, 401a, wholly-owned subsidiary, margin rate, class C shares, option premium, in escrow, open position, deferred revenue, Key Rate Duration, minority interest, per diem, ex-dividend date, covered put, reverse mortgage, cancelled check, average price per share, FICO score, quality assurance, LIBOR, irrevocable trust


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2015 Investor Glossary - All rights reserved - Terms of Use