📈 Stocks & Equities · Lesson 3 of 9 · 10 min
The Bid, The Ask & The Spread
💰 Every time you hit 'Buy,' there's a tiny toll you pay that nobody mentions and most people never notice. Multiply it by a few thousand trades and it's a yacht. Someone's yacht — just not yours.
💡 Key idea
Market order = cross the spread now (buy at the ask). Limit order = name your price, BE the bid or ask, and wait.
🧠 Why it matters
The BID is the highest price buyers are currently willing to pay. The ASK is the lowest price sellers will accept. The gap between them is the SPREAD. Here's the part most lessons skip: with a MARKET order you cross the spread instantly — buying at the ask, selling at the bid. But you don't HAVE to. With a LIMIT order you name your own price and join the bid (or the ask) yourself, then wait for someone to meet you.
🌍 In the real world
💡 Spreads bite hardest on illiquid stocks. Apple's spread is about $0.01 — cross it and you barely notice. A penny stock might be $0.50 wide on a $1.00 stock, so a market order leaves you instantly down 50%. There, a limit order isn't just smart — it's survival.
📌 Takeaways
- Market order: buy at the ask, sell at the bid — instant
- Limit order: set your price, join the bid/ask, and wait to be filled
- Wide spreads punish market orders — lean on limits
📖 Terms in this lesson
Brokerage account: The account you buy and sell investments through; no tax perks, but no limits either.
Bid-ask spread: The gap between what buyers offer and what sellers ask; a hidden cost of every trade.
✅ Test yourself
Which stock has the TIGHTEST spread?
- Penny stock
- Apple (AAPL)
- OTC stock
- Pink sheet
Answer: B · Apple (AAPL)
Apple is one of the most liquid stocks on earth — millions of shares trade daily, so the bid-ask gap is tiny.
Place a MARKET order to buy right now and you pay the...
- Bid
- Ask
- Whatever price you choose
- Yesterday's close
Answer: B · Ask
A market order crosses the spread immediately — you buy at the ask. To buy at your own price instead, use a limit order.
You want to buy BELOW the current ask. What do you do?
- Use a market order
- Place a limit order at your price and wait
- It's impossible — you must pay the ask
- Sell first, then buy
Answer: B · Place a limit order at your price and wait
A limit order lets you BECOME the bid at your chosen price and wait for a seller to meet you — no need to cross the spread.
Why are WIDE spreads dangerous with a market order?
- They're illegal
- You lose the gap the instant you buy
- They mean the stock is too expensive
- They slow down trades
Answer: B · You lose the gap the instant you buy
A wide spread means you 'lose' the gap the moment you cross it. On a $1 stock with a $0.50 spread, a market buy is down 50% instantly — a limit order avoids that.
Quiz, XP and streaks in the app. No sign-up needed.