What is the meaning of spread?
1 answersQuestion asked ( July 27, 2009 , Shopping / Finance )
I heard banks make tons of money on “spread”. I got no clue what it meant when my banker told me this. What is spread in finance?
Answers to : What is the meaning of spread...
Answer
The difference in rates of bid / ask for securities which include stocks, options, currencies etc. is known as spread. Usually, it measures the market liquidity and the size of the transaction cost. Normally it is quoted in basis points (25, 50, 100 basis points). Etc. 100 basis points equates to 1%.
In London the market players quote in Ask/bid format. Whereas, most parts of the world quote Bid/Ask format. We should note that the values don’t change; it is just the change in the format.
Example- New York quote 6.50%-6.75%. The spread is 0.25% or 25 basis points.
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