What is bid ask spread
Q: What is the difference between the "bid" and "ask" price of a stock? Which one should I pay when I buy?
A: If you've ever traded in a car at car dealership, you understand the difference between the "bid" and "ask" price of a stock.
The bid is the price the dealer is willing to pay to buy from you, be it your used car or a stock you're selling. If you roll onto a car lot with a 1993 four-door Ford Escort LX Hatchback with 100,000 miles, you can expect the dealer to pay $675 if it's in good condition, according to Kelley Blue Book. That's the "bid" price.
But if you went to the dealer to buy the same car, the dealer would sell it to you for $2,220. That's the ask price. The "spread" is the difference between the two: $1,545 in the case of the car.
The same goes for stocks. If you're looking to sell a stock, a broker will offer to buy it for one price, the bid.
And if you're looking to buy it, the broker will offer to sell it to you for another, higher ask price. The spread is the broker's profit.
Luckily for everyone, other than brokers, the difference between bid and ask prices has gotten quite small. For instance, the bid on General Electric stock recently was $32.77 and the ask $32.79. The more frequently a stock trades, the closer the bid and ask get. In other words, the spread gets smaller.
You can see the bid and ask prices on any stock at money.usatoday.com. Put the stock's name or ticker symbol in the Quick Quote box. Here's a link to the page with GE's information.
Which should you pay when you're buying? The ask price. That's the price the broker will charge you. When you're selling, you will get the bid price.
Matt Krantz is a financial markets reporter at USA TODAY. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at firstname.lastname@example.org .Source: usatoday30.usatoday.com