Spread is the difference between a security or asset's buying price (bid) and the selling price (ask). Various factors determine the spread, including market liquidity, volatility, and the broker. A narrow spread indicates a highly liquid market with low trading costs, while a wide spread indicates a low liquidity market with high trading costs.
The spread is usually measured in pips (the smallest unit of measurement in the financial markets). Traders should consider the spread when deciding whether to enter or exit a trade since it can affect their profitability. Day traders are more sensitive to spreads due to the high number of trades and smaller average profit per trade than long-term traders.