ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos


Personal Finance Videos 957 videos

Finance: What is Bankruptcy?
260 Views

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

Finance: What is a Dividend?
1777 Views

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

See All

Finance: What is Spread? 48 Views


Share It!


Description:

What is spread (bid-ask)? The bid-ask spread compares how much a buyer will pay to how much the seller will sell for. The asking price is what the seller wants, while the bid is how much the buyer offers; the spread looks at how much higher the ask is than the bid.

Language:
English Language

Transcript

00:00

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

00:08

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

00:11

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

00:21

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

00:27

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

00:34

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

00:39

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

00:45

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

00:50

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

00:55

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

01:01

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

01:07

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

01:11

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

01:16

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

01:19

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

01:23

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

01:28

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

01:33

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

01:38

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

01:42

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

01:47

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

01:51

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

Related Videos

GED Social Studies 1.1 Civics and Government
39794 Views

GED Social Studies 1.1 Civics and Government

Fake News
11938 Views

How do you tell fake news from real news?

Finance: What is Bankruptcy?
260 Views

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

Finance: What is a Dividend?
1777 Views

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

Finance: How Are Risks and Rewards Related?
589 Views

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...