Description of image

Question 11

Liquidity affects how cheaply you can buy or sell an asset. The bid-ask spread -- the difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask) -- is a direct measure of that cost. A narrow spread typically indicates good liquidity and low transaction cost; a wide spread implies higher implicit cost, especially for small or thinly traded ETFs or stocks. Market makers and order book depth influence spreads. For everyday investors, larger spreads mean you effectively pay more when entering and exiting positions. This question asks what the bid-ask spread represents.

What does the bid-ask spread measure?

Did You Also Know...

By Wise Wallet

Retirement accounts commonly impose early-withdrawal penalties to discourage using tax-advantaged savings before retirement.