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Bid-ask spread analysis Meaning

In financial markets, the bid price represents the highest price a buyer is willing to pay for an asset, while the ask price is the lowest price a seller will accept. The bid‑ask spread is the difference between these two values. Analyzing this spread provides insight into liquidity and transaction costs: a narrow spread usually indicates a highly liquid market with many participants, whereas a wide spread suggests lower liquidity and higher cost to trade.

Market makers and brokers often profit from the bid‑ask spread, especially in over‑the‑counter markets where spreads are negotiated. For investors, a larger spread can erode returns because they must buy at the higher ask and sell at the lower bid. Consequently, the spread is sometimes considered a hidden cost of trading.

Bid‑ask spread analysis can help traders choose the best time or venue to execute orders. During periods of high volatility or low volume, spreads tend to widen. Automated trading strategies may incorporate spread thresholds to determine whether a trade is worthwhile.

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Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

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