Bid-Ask

The bid-ask spread measures market liquidity, with wider spreads increasing trading costs and signaling uncertainty.

November 24, 2025

- The spread between the highest price a buyer is willing to pay (bid) and the lowest price a seller will accept (ask) for a security. A key measure of market liquidity.

Scenario:

A hedge fund is considering buying a block of illiquid private company shares on a secondary market. The bid-ask spread is wide due to low trading volume.

Why This Matters:

Wide spreads increase costs, reduce liquidity, signal market uncertainty, impact pricing and portfolio valuation.

The Process:

Negotiations with the seller may narrow the spread. The fund evaluates whether the expected return justifies the cost.