Bid-Ask Spread


Reflects market liquidity

A narrow spread indicates high liquidity, while a wide spread suggests lower liquidity or higher volatility.

Liquidity is often measured as the bid-ask spread divided by the ask price. High liquidity typically corresponds to a spread of less than 0.1%.

Negative bid-ask spread

This happens when seller is selling at a price lower (ask price) than the price the seller is willing to purchase (bid).

If a negative spread exists, traders can buy at the lower ask price and sell at the higher bid price, creating a risk-free arbitrage opportunity. This activity quickly corrects the spread back to positive in efficient markets.

Bid Price

  • The price at which buyers are willing to purchase an asset
  • Sellers receive this price when they sell the asset

Ask Price

  • The price at which sellers are willing to sell an asset
  • Buyers pay this price when they purchase the asset

Split Spread Order


  • Placing split spread orders involves submitting orders that are priced within the bid-ask spread of a security

Typically add liquidity to the market

In some cases, exchanges may provide rebates for adding liquidity.

For example, if the bid is 11, a split spread order placed at $10.50 creates a new price level for potential trades, enhancing market depth and liquidity.

Split spread orders are particularly useful in markets with wide bid-ask spreads, such as ETFs or less liquid securities. These orders can help reduce trading costs and improve execution efficiency. ETFs often have wider bid-ask spreads because they consist of baskets of underlying securities.