Gross Spread

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Definition of 'Gross Spread'

The gross spread is the difference between the bid and ask prices of a security. It is the profit that a market maker makes on each trade. The bid price is the highest price that a buyer is willing to pay for a security, and the ask price is the lowest price that a seller is willing to accept. The gross spread is calculated by subtracting the bid price from the ask price.

For example, if the bid price for a stock is $100 and the ask price is $101, the gross spread is $1. The gross spread is a key factor in determining the profitability of a market maker. Market makers make money by buying securities at the bid price and selling them at the ask price. The larger the gross spread, the more money a market maker makes on each trade.

However, the gross spread is also a cost to investors. When investors buy securities from a market maker, they pay the ask price. This means that they are paying more for the security than they would if they could buy it directly from the issuer. The gross spread can also be a barrier to entry for investors who do not have a lot of money to invest.

The gross spread is an important concept for investors to understand. It is a key factor in determining the cost of investing in securities. Investors should be aware of the gross spread when they are making investment decisions.

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