Basics
Basic4 Min Read
Liquidity and the Spread
The invisible fee you pay on every trade, even when the commission is zero.
A stock does not have one price. It has two at the same time: one you can buy at, one you can sell at, and they are never the same. The gap between them is the real cost that never shows up on any commission table.
Why It Exists
The market maker on the other side takes a risk: they buy the stock from you and hold it until the next buyer shows up. If the price falls in the meantime, they lose. The spread is the fee for that risk.
How Much It Matters
| Stock type | Typical spread | Round-trip cost on a $10,000 trade |
|---|---|---|
| Very liquid — SPY, AAPL | $0.01 (0.002%) | ~$0.20 |
| Mid cap | 0.05% | ~$5 |
| Small cap, low volume | 0.5% | ~$50 |
| Pre-market / after-hours | 3–10× normal | Highly variable |
The last row is the one most people miss: outside regular hours the spread opens up. Trading an earnings reaction after hours "to be quick" usually means handing part of that reaction straight to the spread.
How to Read Liquidity
- Average daily volume. Millions of shares a day means you won't have a problem.
- The width of the spread. A spread wider than a tenth of a percent is a caution sign.
- Depth of book. How much size sits at each level.
What to Do
- Use limit orders, not market orders. In an illiquid stock a market order fills by eating up the book. More: Order Types
- Avoid the first and last minutes of the session. The spread is widest in those two windows.
- Don't trade outside regular hours. Unless you truly must.
- Size positions against volume. If you alone would be a meaningful share of the daily volume, you are the one who will move the price.
Where You'll See It on This Site
The volume row on the stock page is the crudest liquidity gauge, and it is the total across every exchange (the consolidated tape). For a while it showed a single exchange's volume (IEX), which was somewhere between 2% and 8% of the real figure — and because that share differs from stock to stock, ranking companies by volume gave the wrong order too. Prices on screen are delayed 15 minutes; to watch the spread live you need your broker's book.