Question 1

What causes a wide bid-ask spread?

Accepted Answer

Low trading volume, small float, low liquidity, and market uncertainty all widen spreads. OTC and penny stocks often have spreads of 5-20% or more, while large-cap stocks like AAPL have spreads of a few cents.

Question 2

How does the spread affect my trading costs?

Accepted Answer

Every time you buy at the ask and sell at the bid, you lose the spread. On a stock with a 10% spread, you're already down 10% the moment you buy. This is why spread-aware traders use limit orders instead of market orders.

Question 3

What is a good bid-ask spread?

Accepted Answer

For large-cap stocks, spreads under $0.05 are normal. For small-cap and OTC stocks, anything under 2-3% is reasonable. Spreads above 5% should make you cautious about position sizing and exit strategy.

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