price spread

I've noticed that different stocks have differing price spreads - sometimes alarmingly large. Can someone explain how/why this happens?



Legendary member

If MMs know they can easily and quickly cover their positions because there is great demand for the stock (liquidity) there will be a low spread.

The lower the liquidity - the wider the spread becomes to cover the MMs potential exposure (of being left long/short stock at the end of the day).

Volatility also has a part to play in the spread (on stocks), but I believe this is secondary to liquidity.
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