The bid-ask spread is the difference between the highest price a buyer is willing to pay for a security (the bid) and the lowest price a seller is willing to accept (the ask). It’s a simple, direct measure of how liquid — or illiquid — a market actually is.
A tight spread signals an active, well-matched market. A wide spread signals the opposite: fewer participants, more uncertainty, and higher effective cost to transact.
The bid price is what buyers are currently offering to pay for a security. The ask (or “offer”) price is what sellers want to receive. The spread between them reflects trading costs and, in less liquid markets, uncertainty about fair value.
Example: If the highest bid for a stock is $49.90 and the lowest ask is $50.00, the bid-ask spread is $0.10, or about 0.2% of the price. For a thinly traded private company’s shares, a bid of $40 and an ask of $46 would represent a much wider spread of $6, or roughly 14%.
Bid-Ask Spread = Ask Price − Bid Price
It’s often expressed as a percentage of the midpoint price to make it comparable across securities of different values:
Spread (%) = (Ask − Bid) ÷ [(Ask + Bid) ÷ 2]
In public markets, tight bid-ask spreads are common due to high trading volume and many active participants constantly quoting prices. In private markets — including pre-IPO secondary transactions — spreads tend to be wider because there are fewer buyers and sellers, less price transparency, and longer settlement timelines.
The bid-ask spread is a quick, practical gauge of liquidity risk. A wide spread doesn’t necessarily mean something is wrong with the underlying asset — it usually just means fewer people are actively trading it, which is the norm rather than the exception in private markets.
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Disclaimer
This content is for informational and educational purposes only. It does not constitute investment advice, legal advice, or a recommendation to buy or sell any security or to pursue any specific investment strategy.
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Paul leads editorial at Augment, building Pulse into the private markets' go-to intelligence source. He also develops editorial content strategies for startups and venture capital firms. Previously, he spent 15 years as a business and opinion journalist at The New York Times, Fortune, Fast Company, Reuters, and more. He believes transparency creates liquidity—and that someone should actually publish what private shares are trading for. He lives in Marin with his wife and two rescue dogs, and wishes he had more time to surf.
Learn moreA wider spread generally means higher transaction costs and less liquidity, which is common in private and thinly traded markets.
Buyers set the bid based on what they’re willing to pay; sellers set the ask based on what they’re willing to accept. In public markets, market makers also help post quotes that narrow the spread.
No. A narrow spread indicates liquidity and efficient pricing, but it doesn’t guarantee the asset itself is fairly valued or a good investment.
A wide spread in a private secondary market means buyers and sellers may need to negotiate more actively to find a clearing price, often resulting in a price closer to the midpoint or influenced by recent primary round valuations.
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