Bid/Ask Spread

The bid is the highest price a buyer is willing to pay; the ask is the lowest price a seller will accept. The spread is the gap between them. In penny stocks, spreads are routinely 5-20% of the share price — far wider than the 0.01-0.05% spreads on liquid large caps.

That spread is a hidden cost: you start every trade at an immediate paper loss equal to the spread, and you need to make up the spread before profit begins. A $0.05 spread on a $0.50 stock is 10% — meaning the stock needs to move up 10% just for you to break even on a market-order buy and immediate sell. Penny stock profitability requires either using limit orders to control execution or only trading when expected moves dwarf the spread.

Key Points

• Definitions: bid = best buy price. Ask = best sell price. Spread = ask minus bid.
• Impact: a 10% spread means you start 10% underwater the moment you cross the spread to buy.
• Penny stock reality: spreads can be $0.05 on a $0.50 stock — that's a 10% spread.
• Limit orders: control execution price but may not fill. Market orders execute immediately but eat the spread.
• Strategy: place limit orders inside the spread; let the market come to you when possible.

Related Concepts

• Float and Shares Outstanding
• OTC vs Nasdaq Penny Stocks