The spread is the difference between the bid and the ask. The spread, in addition to any fees and commissions, is the cost of making a trade.
We use the spread, in addition to other factors, to confirm price movements. If, for example, the spread is $0.05, then we expect print prices to vary by $0.05. A price would have to vary by more than the spread, especially in the short term, before the move is interesting.
Our short term running up and running down alerts, for example, completely discount the spread. First, based on volatility, we determine that a particular stock seldom changes price by more than $0.10 in a minute. Then we see that stock change from $10.00 to $10.12. To confirm this trend we look not only at the price history, but at the history of the spread. If the spread is $0.01, we will probably report this alert. If the spread is $0.03, we will not report this alert. Even though the print prices moved a lot, some of that movement was overshadowed by the cost of buying or selling that stock. A Trader could not reasonably expect to actually see that $0.12 gain.Back to Glossary Index