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Define “Bid-Ask Spread” and Its Relation to Market Liquidity

The difference between the highest bid and lowest ask price; a narrower spread indicates higher liquidity.
Greeks.Live22.11.25

Define “Bid-Ask Spread” and Its Relation to Market Liquidity.

The bid-ask spread is the difference between the highest price a buyer is willing to pay (the bid) and the lowest price a seller is willing to accept (the ask). A narrow or tight bid-ask spread is a strong indicator of high market liquidity.

This is because high trading volume and many participants ensure that buyers and sellers are closely aligned on price, making it cheaper and easier to execute trades immediately.

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