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Tackle Today: Split the Spread

February 23, 2021

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Mind the Bid/Ask Differential


Stocks don’t have a single price. They have two. The price you can buy at is called the “ask.” As in, this is the price sellers are ASKING for. The price you can sell at is called the “bid.” As in, this is the price buyers are BIDDING for. The difference between the two is called the “spread.” Or, in longer form, the “bid/ask spread.” Some even refer to it as the bid/ask differential. I always liked that term because it makes you sound smart, like a mathematician pontificating on differentials and other numerical nonsense.

Even though the market has a quoted bid and ask price, it’s smart to split the spread. In other words, try to buy for less than the ask price or sell for a little more than the bid price. The middle of the bid and ask is known as the midpoint or “mid” for short. In ThinkorSwim, it’s known as the “Mark.”

Veteran traders are always trying to enter and exit trades at this midpoint for the simple fact that it gives them a better price. If you’re not already, start using limit orders and place the price at the midpoint. If you don’t get filled, you can adjust the price slightly higher (if buying) or lower (if selling) to improve the chances your order gets filled.

Though it takes slightly more effort, you’ll at least come away from freshly filled order with the confidence that you entered (or exited) at the best price possible when you use this practice.


Chart of the Day

Bid-Ask Spread

Note the Mark, Bid, and Ask columns in this option chain. The Mark price reveals the midpoint between the Bid and Ask.

Video of the Day

What is the Bid Ask Spread

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