By Marco BösingWhat Is the Bid-Ask Spread?
The bid-ask spread is the difference between the best bid (the highest price someone is willing to pay) and the best ask (the lowest price someone is willing to sell at). It is the most fundamental measure of the cost of immediate execution.
When a trader places a market buy order, they pay the ask price. If they immediately sell back with a market sell order, they receive the bid price. The difference — the spread — is the loss incurred from immediate purchase and sale.
Components of the Spread
Best Bid
The best bid is the highest limit buy order in the order book. It represents the highest price a buyer is willing to pay.
Best Ask (Best Offer)
The best ask is the lowest limit sell order in the order book. It represents the lowest price a seller is willing to accept.
Spread Calculation
Spread = Best Ask - Best Bid
Example in NQ futures: Best Bid = 18,250.00 / Best Ask = 18,250.25 → Spread = 0.25 points (= 1 tick = $5 per contract)
Spread as a Liquidity Indicator
The spread is a direct indicator of market liquidity:
- Tight spread (e.g., 1 tick): High liquidity, many market participants, low trading costs. Typical for liquid futures like ES, NQ, or Bund futures
- Wide spread (multiple ticks): Low liquidity, few market participants, higher trading costs. Typical for illiquid instruments or outside main trading hours
Spread Dynamics
The spread is not static but changes with market conditions:
- Before news events: The spread widens as market makers reduce their risk
- During high volatility: The spread widens as uncertainty increases
- In quiet phases: The spread narrows as market makers compete for order flow
- At session close: The spread may widen as liquidity providers close positions
Spread and Trading Costs
For active traders, the spread is a significant cost factor:
- Scalpers trade hundreds of times per day and pay the spread on every trade. A 1-tick spread over 100 trades means 100 ticks in spread costs
- Swing traders pay the spread only on entry and exit. The relative impact on total profit is smaller
- Limit order traders can avoid the spread by providing liquidity instead of taking it. They earn the spread rather than paying it
Frequently Asked Questions
Why is the spread in futures typically tighter than in CFDs?
Futures are traded at central exchanges where thousands of market participants compete directly. CFDs are traded against the broker, who uses the spread as a revenue source and is not required to allow genuine competition.
What is a normal spread for NQ futures?
During main trading hours (US session), the NQ futures spread is 0.25 points (1 tick). Outside main trading hours or before major news, the spread can widen to 2-4 ticks.
Can the spread be zero?
Theoretically not, since bid and ask represent different market participants. In practice, the minimum spread is 1 tick (the smallest tradable price increment).