Spread Info

Spread Info

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In finance, a spread refers to the difference between two prices, rates, or yields One of the most common types is the bid-ask spread, which refers to the gap between the bid (from buyers) and the ask (from sellers) prices of a security or asset Spread can also refer to the difference in a trading position – the gap between a short position (that is, selling) in one futures contract or currency and a long position (that is, buying) in another

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The middle rate, also called mid and mid-market rate, is the exchange rate between a currency's bid and ask rates in the foreign exchange market.

Spread betting refers to speculating on the direction of a financial market without actually owning the underlying security.

A two-way quote indicates the current bid price and current ask price of a security; it is more informative than the usual last-trade quote.

A futures spread is an arbitrage technique in which a trader takes two positions on a commodity to capitalize on a discrepancy in price.

Quotation is a common term that refers to the highest bid price for a security or commodity and the lowest ask price available for the same asset.

A bid-ask spread is the amount by which the ask price exceeds the bid price for an asset in the market.

Credit Spread vs. Debit Spread: What's the Difference?

After-Hours Trading: Bid and Ask Quote Disparity

Option-Adjusted vs. Zero-Volatility Spread: What's the Difference?

Understanding the Numbers After Bid/Ask Prices

A Breakdown on How the Stock Market Works

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A spread can have several meanings in finance. Generally, the spread refers to the difference between two prices, rates, or yields . In one of the most common definitions, the spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond , or commodity. This is known as a bid-ask spread.

Spread can also refer to the difference in a trading position – the gap between a short position (that is, selling) in one futures contract or currency and a long position (that is, buying) in another. This is officially known as a spread trade.

In underwriting , the spread can mean the difference between the amount paid to the issuer of a security and the price paid by the investor for that security—that is, the cost an underwriter pays to buy an issue, compared to the price at which the underwriter sells it to the public.

In lending, the spread can also refer to the price a borrower pays above a benchmark yield to get a loan. If the prime interest rate is 3%, for example, and a borrower gets a mortgage charging a 5% rate, the spread is 2%.

The bid-ask spread is also known as the bid-offer spread and buy-sell. This sort of asset spread is influenced by a number of factors:

For securities like futures contracts , options, currency pairs, and stocks, the bid-offer spread is the difference between the prices given for an immediate order—the ask—and an immediate sale – the bid. For a stock option , the spread would be the difference between the strike price and the market value .

One of the uses of the bid-ask spread is to measure the liquidity of the market and the size of the transaction cost of the stock. For example, on Jan. 11, 2022, the bid price for Alphabet Inc., Google's parent company, was $2,790.86 and the ask price was $2,795.47. 1 The spread is $4.61. This indicates that Alphabet is a highly liquid stock, with considerable trading volume.

The spread trade is also called the relative value trade. Spread trades are the act of purchasing one security and selling another related security as a unit. Usually, spread trades are done with options or futures contracts. These trades are executed to produce an overall net trade with a positive value called the spread.

Spreads are priced as a unit or as pairs in future exchanges to ensure the simultaneous buying and selling of a security. Doing so eliminates execution risk wherein one part of the pair executes but another part fails.

The yield spread is also called the credit spread . The yield spread shows the difference between the quoted rates of return between two different investment vehicles. These vehicles usually differ regarding credit quality .

Some analysts refer to the yield spread as the “yield spread of X over Y.” This is usually the yearly percentage return on investment of one financial instrument minus the annual percentage return on investment of another.

To discount a security’s price and match it to the current market price, the yield spread must be added to a benchmark yield curve . This adjusted price is called an option-adjusted spread . This is usually used for mortgage-backed securities (MBS), bonds, interest rate derivatives, and options. For securities with cash flows that are separate from future interest rate movements, the option-adjusted spread becomes the same as the Z-spread.

The Z-spread is also called the yield curve spread and zero-volatility spread . The Z-spread is used for mortgage-backed securities. It is the spread that results from zero-coupon treasury yield curves which are needed for discounting pre-determined cash flow schedule to reach its current market price. This kind of spread is also used in credit default swaps (CDS) to measure credit spread.

A yield spread is the difference between yields on differing debt instruments of varying maturities, credit ratings, issuer, or risk level, calculated by deducting the yield of one instrument from the other. This difference is most often expressed in basis points (bps) or percentage points. Yield spreads are commonly quoted in terms of one yield versus that of U.S. Treasuries, where it is called the credit spread.
The option-adjusted spread (OAS) measures the difference in yield between a bond with an embedded option, such as an MBS, with the yield on Treasuries. It is more accurate than simply comparing a bond’s yield to maturity to a benchmark. By separately analyzing the security into a bond and the embedded option, analysts can determine whether the investment is worthwhile at a given price.
The zero-volatility spread (Z-spread) is the constant spread that makes the price of a security equal to the present value of its cash flows when added to the yield at each point on the spot rate Treasury curve where cash flow is received. It can tell the investor the bond's current value plus its cash flows at these points. The spread is used by analysts and investors to discover discrepancies in a bond's price.
Yahoo! Finance. " Alphabet Inc. (GOOGL) ." Accessed Jan. 11, 2022.

11 other terms for spreading information - words and phrases with similar meaning

Want to know more about pips? Read more about pips in ‘ what are pips ?’

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Home » Information about trading » What is the spread in trading? » Written by Alex Mostert
When you trade, the spread is an important factor you need to account for. The spread forms the transaction fee of a trade and can be seen as the difference between the buy- and sell price. But what is the spread in trading?
When investing, there is always a bid and an asking price. But what do these prices indicate?
The buy or bid price is the price that the broker is willing to pay for the stock. The buy price or ‘ bid ’ is always lower than the sell price or ‘ ask ’. With some brokers you can place an order on a falling price as well. When you do this you achieve a positive result if the stock price decreases. Speculation on a falling stock price is called shorting .
The asking price indicates at what amount you can buy a share. When you buy a share you earn money when the price increases.
The offer and asking price together constitute the quote . Within the quote there is always a difference between the offer and asking price. This difference represents the cost to you as an investor, and we call it the spread.
By determining the difference between the bid and asking price you will find the spread or cost per unit. You can then multiply this amount by the number of shares to find out how much you pay in total.
When you sometimes buy or sell a share, the spread is not very important. After all, you only pay the small amount once. However, the spread is important for the active day trader. As a trader, you perform multiple trades within a short time frame. On every transaction you will have to pay the spread.
It is therefore wise to take a good look at which broker you can trade with cost-effectively. We’ve researched the best brokers for cost-effective investing. Use the button below to compare them:
The spread is a result of supply and demand within the market. Buyers want to buy shares as cheaply as possible while sellers prefer to sell shares at the highest possible price. When the price of a share is at $10, the seller can choose to sell the share for $10.02. When you take the offer, you are paying 2 cents worth of spread.
Brokers increase the spread by charging transaction fees.
The size of the spread may vary. When the bid price and asking price are close together, there is a tight market . The buyers and sellers then agree on the price of a share. In a large market, the opposite is happening: buyers and sellers cannot agree on a price.
The following factors affect the size of the spread:
You can see the spread by looking at the difference between the buy and the sale price. Below is an example of spread on a CFD at Plus500:
A dynamic or variable spread is a spread that can change sporadically. When you start investing in a security with a dynamic spread, it’s important to make sure that the spread hasn’t become too unpredictable.
A fixed spread doesn’t change. With some brokers, you will agree on a fixed spread on certain securities. Also, when investing, you sometimes have to pay a fixed commission on your investment.
The spread can increase if a given share’s trading activity drops. Also, during strong market movements, you may have to pay a higher spread. When many people want to sell a share, the spread can increase considerably.
On the EUR/USD currency pair the spread is usually 0.0002 per unit or less. Currencies are traded in whole units (1 euro, 1 dollar, 1 Yen, etc.) and the costs are calculated by multiplying the amount of the currencies you trade by the spread.
When you open a position of $10,000, you pay 0.0002 (cost per unit) x 10,000 = $2 in fees.
Most brokers display the spread in pips. One pip is the fourth decimal of a currency pair, or 0.0001. Only the Japanese Yen is the exception to this rule, there the pip is the second decimal, or 0.01. If, instead of Forex, you trade stocks, commodities or index funds, the transaction fees are mostly displayed as fixed fees.
A spread arises through the interplay of supply and demand. The quote or price of a share is created by combining the different buy and sell orders of the parties involved. This creates a market. The broker often increases the price to make money from the executed trades. This increases the spread further.
When I was 16, I secretly bought my first stock. Since that ‘proud moment’ I have been managing trading.info for over 10 years. It is my goal to educate people about financial freedom. After my studies business administration and psychology, I decided to put all my time in developing this website. Since I love to travel, I work from all over the world. Click here to read more about trading.info! Don’t hesitate to leave a comment under this article.
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