Saturday, January 1, 2011

Bid-offer Spread

The bid-offer spread (or bid/ask spread) is the difference between the bid price (the price at which shares are redeemed, or sold back to the fund manager), and the offer price (the price at which new units are purchased). The firm that is providing the product will keep a positive bid-ask spread in order to pay for dealing/trading costs, and any other transactions costs, and perhaps to retain some of the difference as profits. The bid offer spread will always be positive, i.e. if you buy and sell simultaneously your net position would be slightly worse off.

Synonyms: Bid/Ask spread, Buy-sell spread, Spread

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