Bid-Ask Spread

The bid-ask spread is the difference between the highest price a buyer is willing to pay for an ETF share (the bid) and the lowest price a seller is willing to accept (the ask), representing an implicit trading cost paid each time you buy or sell.

How Bid-Ask Spread Works

Every time you place an order to buy or sell an ETF on a stock exchange, two prices are displayed: the bid (the highest price any buyer currently offers) and the ask (the lowest price any seller currently accepts). The spread is the gap between these two numbers.

For example, if SPY has a bid of $500.00 and an ask of $500.01, the spread is $0.01 — or about 0.002% of the share price. When you buy at market price, you typically pay the ask; when you sell, you receive the bid. This means every round-trip trade (buy then sell) costs you the full spread.

The spread is not a fee paid to anyone directly — it is compensation to market makers, who are firms that continuously quote both bid and ask prices to keep the market liquid. Tighter spreads mean lower hidden trading costs for investors.

What Is a Good Bid-Ask Spread?

For large, highly liquid ETFs like SPY, VOO, and QQQ, spreads are typically one cent ($0.01) or less — effectively negligible for long-term investors. These spreads often amount to less than 0.002% of the share price.

For smaller, less liquid ETFs — particularly niche sector funds, international ETFs, or newer thematic funds — spreads can widen to $0.05, $0.10, or more. On a $50 ETF share, a $0.10 spread is 0.20% per trade, which adds up meaningfully if you trade frequently.

As a practical benchmark: a spread below 0.10% of the share price is generally acceptable for most investors. Spreads above 0.50% are a warning sign worth investigating.

SPY (SPDR S&P 500 ETF Trust) typically trades with a bid-ask spread of $0.01 — the tightest spread of virtually any security in the US market, a direct result of its enormous trading volume.

VOO (Vanguard S&P 500 ETF) also trades with spreads of $0.01 or less under normal market conditions, despite lower daily volume than SPY.

QQQ (Invesco QQQ Trust) similarly maintains penny-wide spreads given its high liquidity and heavy institutional usage.

Less-traded niche ETFs — particularly those focused on frontier markets or very specific sectors — can have spreads of $0.05–$0.50 or more, making them significantly more expensive to trade actively.

Bid-Ask Spread vs Expense Ratio

Both the bid-ask spread and the expense ratio are costs of owning an ETF, but they work differently. The expense ratio is an ongoing annual cost deducted automatically from the fund’s assets. The bid-ask spread is a one-time transaction cost paid each time you buy or sell.

For long-term buy-and-hold investors who trade infrequently, the expense ratio matters far more than the spread. For active traders who enter and exit positions frequently, the spread can accumulate into a significant total cost — sometimes exceeding the annual expense ratio in a single year of frequent trading.

Related: Expense Ratio

Frequently Asked Questions About Bid-Ask Spread

Does the bid-ask spread apply to limit orders as well?

Yes, but limit orders give you more control. A limit order lets you specify the exact price you are willing to pay (for a buy) or accept (for a sell). If you place a buy limit order at the bid price rather than the ask, you may avoid paying the full spread — but your order may not fill immediately if no seller accepts your price. For most individual investors buying broad index ETFs, market orders on liquid funds are practical and cost-effective.

When does the bid-ask spread widen?

Spreads widen during periods of market stress, low liquidity, or thin trading volumes. This includes pre-market and after-hours sessions, the first and last minutes of the trading day, and major market events like index rebalancing days or economic announcements. For this reason, many investors avoid placing market orders in the first or last 15 minutes of the trading day when spreads are typically wider.

How can I find an ETF’s typical bid-ask spread?

ETF.com publishes average bid-ask spread data for most ETFs, expressed both in dollars and as a percentage of the share price. Your brokerage platform also displays the current bid and ask prices in real time when you look up any ETF’s trading screen. Morningstar and the fund issuer’s website may also provide this data.

RELATED_TERMS: Assets under management, Expense ratio, [Market price], Average daily volume, Limit order

Disclaimer: The information in this article is for educational and informational purposes only. It does not constitute financial, investment, or tax advice. Past performance is not indicative of future results. Investing in ETFs involves risk, including possible loss of principal. Always consult a qualified financial advisor before making investment decisions.