What is a spread? The cost you pay on every trade

Buy 100 Tesla shares and sell them back one second later, with the price not moving at all, and you have lost money. On Tesla it is about one dollar. On a thinly traded stock on the same exchange, in the same minute, the same round trip costs more than a hundred. The difference is the spread: the gap between the best ask and the best bid, which you met inside the order book in bid and ask explained. This lesson is about what that gap costs you, and when it matters.

What you’ll learn

• Why every trade with a market order starts in the red
• How to work out the cost of the spread, per share and per trade
• Why the same spread can be nothing for a swing trader and fatal for a scalper
• The other things traders call a spread, and which one ChartThread’s spreads page shows

Why every trade starts in the red

A market buy pays the ask. But the moment you own the shares, what they are worth to you is what you could sell them for: the bid. That is one spread lower. So a fresh position is already losing by the spread, before price has moved a single tick. The same is true for a short: you sell at the bid, and buying back would cost the ask.

You pay the spread once per round trip, half on the way in and half on the way out, measured from the middle price. A limit order can avoid it, because it waits to be filled at its own price, but it may never fill.

The cost of the spread, per share and per trade

The cost per share, or per unit of whatever you trade, is simply the spread:

For a whole trade, multiply by your quantity:

And to compare instruments with different prices, express it as a share of the price, usually in basis points (1 bp = 0.01%):

For Tesla at 19:44 UTC on 10 October, 382.90 minus 382.89 is 0.01 per share. On 100 shares that is 1 USDT. As a share of the price, 0.01 out of about 382.90 is 0.0026%, or 0.26 bp.

How wide is a spread? Eleven instruments, one minute

Most of the instruments in this chart have a spread of one cent, the smallest step their price can take. What changes is how big that cent is compared with the price: 0.02 bp on gold at about 4,196, nearly 1 bp on Intel at about 105.

Then there is a second group. SoFi, Twist Bioscience and Flex are listed on the same exchange, but far fewer people trade them. Their spreads are 13 to 18 bp: about fifty times Tesla’s, and up to 900 times gold’s. A wide spread is a warning sign in itself: few buyers and sellers are competing, so the book behind it is thin too.

Example: 10,000 USDT, two instruments, one round trip

Take 10,000 USDT, buy with a market order and sell straight back, on Tesla and on Twist Bioscience at the same minute. Tesla’s 10,000 buys 26.12 shares; Twist Bioscience’s buys 61.95.

The spread:

Slippage. A 10,000 USDT order does not fit at the best price on a thin book, so it walks the book and fills worse. Computed from the real books, buying and then selling cost an extra 0.61 USDT on Tesla and 90.35 USDT on Twist Bioscience (more in what slippage is).

Fees. Say a taker fee of 0.05% on each side, an example; check your exchange (maker vs taker fees): $\mathrm{10,000}\times 0.0005\times 2=10$ USDT on either.

On Tesla, the spread is the smallest part of the bill: the fees are almost forty times bigger. On Twist Bioscience it is the other way round: spread and slippage together cost ten times the fees. Same exchange, same minute, a total of 10.87 USDT against 113.36.

Why a small spread can still be a big cost

What matters is not the spread alone, but the spread compared with how far you are trying to go. Compare it with your stop:

• A swing trade with a stop 7.50 away, like the Tesla long in long and short positions, barely feels a one-cent spread: 0.1% of the risk.
• A scalp with a stop 0.30 away pays 3.3% of its risk on Tesla, and 70% on Twist Bioscience. On that instrument, the scalper is most of the way to the stop the moment they enter.

This is why scalpers stick to the tightest, deepest instruments, as you saw in types of trading, while swing traders can trade almost anything with a working book.

Are there different types of spreads?

Yes. “Spread” means a difference between two prices, and traders use it for several different pairs of prices:

The first two are easy to mix up, and ChartThread uses the word for the second one. In the figure, Tesla’s bid-ask spread is one cent on both exchanges, but Binance and Bybit are 4 cents apart. That gap between exchanges is what ChartThread’s spreads page tracks, hour by hour, for the same instruments on Binance and Bybit.

Common mistakes

• Counting only the fees. On thin instruments, the spread and slippage are the bigger cost. Add all three.
• Scalping a wide-spread instrument. If the spread is a big share of your stop, the trade starts most of the way to a loss. Scalp only the tightest books.
• Judging a spread by its size in money. One cent is tiny on gold at 4,196 and large on a share worth a few dollars. Compare spreads in percent or basis points.
• Confusing the two spreads. The bid-ask spread is a cost inside one book; the spread between exchanges is a price gap between two. ChartThread’s spreads page shows the second.

Key takeaways

• The spread is ask minus bid, and you pay it the moment you trade with a market order.
• The cost of a trade’s spread is the spread times the quantity; compare instruments in percent or basis points.
• On liquid instruments the spread is tiny next to fees; on thin ones, spread plus slippage can be many times the fees.
• The tighter your stop, the more the spread matters: scalpers need the tightest books.
• “Spread” has other meanings too: between exchanges, between futures and spot (basis), between expiries, and between related instruments.