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Basics of the Bid-Ask Spread

From Theory To Practice

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

As a beginner trader, we are immediately faced with obstacles that we must overcome. For example, the decision to buy or sell, trade a call or a put, or establish a position in AMZN or GOOG, are choices we must make. In this same genre of dual variables, early on along the learning curve, we must understand the difference between the “bid price” and the “ask price”. In today’s segment, we learn what these prices are, by first understanding basic market functionality and the role of the market maker. Kai from the research team joins the discussion with some research to talk through chasing the market, bid-ask spread dynamics, and risk to the counterparty.

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