Bid-ask spread: definition, formula & what it means in private markets
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.
What is the bid price?
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 formula
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]
Bid vs. ask price in private markets
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.
Final thoughts
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.
Want to keep learning? Explore Augment’s network, see what’s new in Collective, browse The Power 20, and keep up with the private market with the Pulse.
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.
.jpeg)
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 more
