01Two prices, not one
The bid is the highest price a buyer is currently willing to pay. The ask (or offer) is the lowest price a seller will accept. The spread is the gap between them. The price printed on a chart is usually the last traded price — wherever a buyer and seller actually met.
If you buy at market, you pay the ask. If you sell at market, you receive the bid. Buy and immediately sell and you lose the spread — it is the toll for instant execution, collected by whoever was resting a limit order on the other side.
Small orders fill at the best price. Larger ones walk the book, so the average price gets worse with every level they consume.
02Ticks, pips and what a spread costs
Markets move in minimum increments. Futures use ticks (ES and NQ move 0.25 points), forex uses pips (0.0001 on most pairs), and stocks use cents. Each tick has a cash value per contract or lot.
| Market | Minimum move | Value of one move | Typical spread |
|---|---|---|---|
| E-mini S&P 500 (ES) | 0.25 pt | $12.50 per contract | 1 tick |
| E-mini Nasdaq (NQ) | 0.25 pt | $5.00 per contract | 1 tick |
| Micro Nasdaq (MNQ) | 0.25 pt | $0.50 per contract | 1 tick |
| EUR/USD spot | 0.00001 (pipette) | $10 per pip per standard lot | 0.1–1.0 pips |
| Large-cap stock | $0.01 | $0.01 per share | $0.01–0.02 |
A scalper doing 10 round trips a day in NQ pays at least 10 ticks a day in spread before commissions. Over a year that is more than $12,000 per contract. Your edge must clear that hurdle before it makes a cent.
03Liquidity and slippage
Liquidity is how much size is resting near the current price. In deep markets, a market order fills at the best price. In thin markets, a large order eats through several levels of the book and fills at progressively worse prices — that difference is slippage.
- Spreads widen around high-impact news (CPI, FOMC, payrolls) as liquidity providers pull their orders.
- They widen in illiquid hours — the futures daily halt, holidays, the Asian session for US indices.
- Stop orders become market orders when triggered, so stops in fast markets often slip.
Charts show traded prices. A backtest that assumes you bought at the exact low of a wick is fantasy — someone else got that fill. Professional backtests (like TradeBolt’s) add slippage and require price to trade through limit levels.
- Bid = best price to sell into; ask = best price to buy from.
- Market orders pay the spread; limit orders can earn it.
- Spread cost = spread × tick value × size, every time you cross.
- Thin liquidity and news widen spreads and cause slippage.
- Ignoring spread and commission when judging a strategy
- Using market orders during major news releases
- Assuming a backtest fill at the exact high or low of a wick
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