Define the Term ‘Bid-Ask Spread’ and Its Relevance to Stop-Limit Placement

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). It represents the cost of immediate execution.

A wide spread indicates low liquidity. When placing a stop-limit, the spread influences the gap between the stop and limit price.

A wider spread necessitates a larger gap to increase the chance of the limit order being filled after the stop is triggered.