Stock market spreads
We refer to spreads as being wide, or narrow.
For big companies, where demand and supply for the shares is high, then the spread will be narrow.
Take BP for instance, which was recently quoted as 676p-677p the difference between the bid and offer price is just 1p, 0.15pc of the bid price.
That is an extremely narrow spread.
This is good if you are buying. It means the shares only need to go a smidgeon and you've made a profit on transaction.
The spread is narrow because there is a healthy market for the shares and there are lot of them swilling around.
For smaller companies the spread can be as wide as 15-20pc.
That means the shares would have to go up as much 20pc before you start making a profit.
Robbie Burns in the Naked Trader (link) says he rarely trades shares with a spread of more than 5pc and we say that is a good rule of thumb.