price spread

fundjunkie

Member
56 0
Hi,
I've noticed that different stocks have differing price spreads - sometimes alarmingly large. Can someone explain how/why this happens?


Thanx,
D
 

TheBramble

Legendary member
8,395 1,171
Liquidity.

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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