What is spread?

The term spread in economics refers to the difference between the bid and ask price for a specific security. It can be used as an indicator of the liquidity of a security, where lower spreads would reflect more liquidity, although it is possible that it is also altered by other conditions.

In the field of finance, this concept is quite polysemic. The main meaning of spread is the difference between the demand (bid) and the offer (ask) of a market, although it can also refer to the differential of profitability between one product and another that can be compared to it. An example can be the spread between the Spanish and German bonds.

In the options market, spreads refer to combinations of buying and selling options with different exercise prices, which allow you to benefit from market movements, either up or down, but with a low premium and moderate losses or gains.

In general terms, the spread is the margin or differential, either of prices in the same product, between two items or between two expiration dates of a product. Possibly the best known spread is the one mentioned when comparing, for example, the Spanish ten-year bond with the German in the same period of time. This margin will imply a symptom of confidence or distrust in the payment of the Spanish sovereign debt.

What is an exchange spread?

The term spread is used in the stock market to indicate the differences of different types and the strategies to follow based on those differences. It is used to show the difference in the quotes between the sale and the purchase, and is used for any action of the stock exchange. The financial spread is the financial margin, the difference between the exchange of purchase and sale in the form of quotation.

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