ShmoopTube

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finance a la shmoop. what is spread? before we start just no. get your mind

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out of the gutter. spread refers to the money value between [100 dollar bill]

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a bid and ask price under a market maker structure of trading securities. no more

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wire hangers, a plastic hanger company is publicly traded on an exchange like

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Nasdaq where buyers bid for a price to purchase and sellers ask for a price to [Nasdaq wall shown]

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trade. no more wire hangers is bid this moment at 37:23 a share by buyers

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willing to buy right now at that price and is being asked at this moment at a

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price of 37.31. note the eight cents a shared difference in the share prices.

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that dif is the spread between the two prices, and it's worth noting that in [bread is buttered]

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extremely volatile stocks, the spread widens. and in boring highly liquid

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stocks which don't move much, the spread tightens or is narrower. that is on a

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volatile equivalent of no more wire hangers the spread might grow to 20 or

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30 cents a share whereas a boring name that pays a big dividend and the stock

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never moves much we're thinking AT&T here, [man snores at a desk]

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well that spread might be just three or four cents. so why grow? well because a

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market maker in a volatile stock doesn't want to be caught losing money on her

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inventory. if no more wire hangers suddenly gapped down to 37.10 a share [equation shown]

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well it would be likely less than the average of what the market maker paid

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for her quote "inventory" unquote in that stock from which he was making a market

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in it. each time the shares trade the market makers dip into that spread to [woman dips cracker in butter]

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pay their bills and allow them to keep doing business. so that's spread. and it's

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not the type that Prince used to sing about. [man on stage]

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