What Is a Bid-Offer Spread and Why Is It Important?

The bid-offer 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 offer or ask). It represents the market maker's or exchange's profit margin for facilitating a trade.

A narrow spread indicates high liquidity and lower transaction costs for traders. A wider spread suggests lower liquidity and higher costs.

It is crucial for determining execution price and overall trading profitability.