A brokerage statement can show zero commission while a trade still begins with an economic hurdle. One reason is the bid-ask spread: the distance between the buying and selling quotes visible at the same moment.
Read both sides of the quote
Investor.gov defines the bid as the highest price a buyer is willing to pay for a specified number of shares and the ask as the lowest price a seller is willing to accept. The difference is the spread.
Suppose a hypothetical quote is $19.95 bid and $20.05 ask. The dollar spread is $0.10. The midpoint is $20.00, so the spread is 0.5% of the midpoint: $0.10 divided by $20.00.
An unchanged market can still produce a loss
In a simplified example, buying 100 shares at the $20.05 ask costs $2,005. Immediately selling those shares at an unchanged $19.95 bid returns $1,995. The difference is $10 before any explicit fees.
This is an illustration of crossing the spread in both directions. Actual fills can differ, quotes can change, and the displayed quantity may not be enough for the entire order. The example does not assume that the midpoint was an executable price.
Compare percentages as well as cents
A $0.10 spread means something different on a $2 stock than on a $200 stock. Relative to midpoints of $2 and $200, it represents 5% and 0.05%, respectively. Using only the number of cents hides that distinction.
A trading journal can record the bid, ask, midpoint, displayed size and timestamp before the order. After execution, add the actual fill price. Keeping these fields together allows a more precise review than comparing the fill with an old chart label.
A worksheet for execution research
- Dollar spread = ask minus bid.
- Midpoint = bid plus ask, divided by two.
- Percentage spread = dollar spread divided by midpoint, multiplied by 100.
- Record quantity and timestamp alongside the calculation.
Do not automatically add this full spread estimate to a recorded loss: the actual buy and sell prices already incorporate the executions. The worksheet is a way to understand the quote, not a separate fee invoice. Reviewing both quoted and executed prices helps keep trading costs visible.
Source
SEC Investor.gov: Bid Price and Ask Price.
Featured image: Jakub Żerdzicki / Unsplash.
