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Bid/Ask Spread, what does it tell you?

post #1 of 4
Thread Starter 
I understand that the lower the spread, the better.

But does the spread tell you anything else?

Should I keep track of the spread each day? And does the fluctuation in spread tell us anything?

Anything you have to add would be greatly appreciated, as you can tell I am fairly new.

Thank you!!!
post #2 of 4
Normally right off the bat when I see a large spread I think of the float which is probably really low. Large spreads make it hard to get in and out if necessary because it makes it harder to sell with a good profit due to the low bid price (you really need the price to move to compensate for the low bid). jmo
post #3 of 4
The spread is the highest advertised bid and the lowest advertised ask. It's telling you what the highest bidders is trying to buy at and the lowest asking selling price. It tells you what you are going to pay to purchase shares (ask) if you want a quick fill and what you can sell shares (bid) at currently. If you purchase at the ask price, you are instantly down if you needed to sell quickly. So the closer the bid is to the ask, the less you are instantly down. If you have a very wide spread, you are considerably down on the trade as soon as you buy (assuming you bought at the ask).

There is no reason to write down the spreads and track them. Just try to trade stocks that have narrow spreads. Learn technical analysis of charts to learn the most about what the trading action is telling you.
post #4 of 4
Thread Starter 
Thanks for your help!!
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