The difference between the best available buy price (ask) and the best available sell price (bid) for a financial instrument at any given moment. The spread represents an implicit trading cost because you buy at the higher price and sell at the lower price.
Why It Matters
- 1Spread is a hidden cost that affects every trade you make.
- 2In liquid futures markets like ES, the spread is typically just 1 tick ($12.50 per contract), but in less liquid instruments or during off-hours, spreads can widen to multiple ticks.
- 3For scalpers taking small profits, the spread can consume a significant portion of each trade's potential gain.
- 4In prop firm evaluations, wider spreads eat into your profit target progress and can make the difference between passing and failing on tight margins.
Example
- 1The ES futures bid is 4,500.00 and the ask is 4,500.25 — a 1-tick spread.
- 2You buy 5 contracts at the ask price of 4,500.25. To break even, the bid must rise to at least 4,500.25 so you can exit at your entry price.
- 3Each tick ($12.50 per contract) you give up on entry is a cost you must recover before profit begins.
Common Mistakes
- ✖Ignoring spread costs when calculating expected trade profitability
- ✖Trading during low-liquidity hours when spreads are wider than normal
- ✖Not comparing spread conditions across different prop firm platforms