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Bid-ask spread: What happens in a stock exchange purchase
What is the bid-ask spread? A numerical example shows why buying and selling prices differ and how orders affect the price.
Key points at a glance
- Two prices: There is the bid price, at which sellers trade, and the higher ask price, at which buyers trade. In the example they are CHF 100.00 and CHF 100.20.
- Order book: Buy and sell orders face each other. The best price comes first. At the same price, the order received earlier usually comes first.
- Order: In the example, a market order for 150 units runs through two price levels and costs around CHF 100.23 on average instead of CHF 100.20. A limit order fixes the price, but execution is not certain.
- Costs: In the example, anyone who buys 100 units and sells them immediately loses around CHF 20 with a narrow spread and around CHF 200 with a wide one.
The bid-ask spread is the gap between the highest price buyers are offering and the lowest price at which sellers will part with a security. Anyone who buys immediately pays the higher price. Anyone who sells immediately receives the lower one. The spread is therefore part of the trading costs, even though it appears on no invoice.
In brief
Security and stock exchange
Order
Order book
Units
Two prices for the same security
On the stock exchange there is never just one price. Prospective buyers state the most they are willing to pay. Prospective sellers state the least they will accept. The highest buying price is called the bid price, the lowest selling price the ask price. The spread lies in between.
| Term | Meaning | Who gets it |
|---|---|---|
| Bid price | highest price buyers are offering | sellers receive it |
| Ask price | lowest price at which sellers will sell | buyers pay it |
| Spread | ask price minus bid price | difference between the two |
An invented example: the bid price is CHF 100.00 and the ask price is CHF 100.20. The spread is CHF 0.20, around 0.2% of the ask price. Buyers pay CHF 100.20. Sellers receive CHF 100.00.
The order book as a staircase
The order book shows where the two prices come from. It resembles a staircase with two sides. One side holds the sell orders, with the lowest price at the bottom. The other holds the buy orders, with the highest price at the top. Ask price and bid price meet in the middle, with a gap between them.
Trading follows fixed rules. The best price comes first. At the same price, the order received earlier usually comes first.
Before trading starts, orders are collected and not yet executed. The opening auction looks for the price at which the most orders can be matched. Continuous trading follows. The closing auction determines the official closing price. The times depend on the trading segment and the security.
Numerical example (illustration)
A fictional security with round values, no market data:
| Side | Price in CHF | Quantity in units |
|---|---|---|
| Sell | 100.40 | 200 |
| Sell | 100.30 | 100 |
| Sell (ask price) | 100.20 | 100 |
| Buy (bid price) | 100.00 | 120 |
| Buy | 99.90 | 150 |
| Buy | 99.80 | 200 |
The spread is CHF 0.20.
How does a purchase work?
The order type determines how a purchase is executed. SIX offers, among others, three order types.
Fast, price open
Market order
Executed immediately at the best price currently available. The price is not fixed.
Price fixed
Limit order
Sets a maximum price when buying and a minimum price when selling.
Waits for a price
Stop order
Only triggered when the price reaches a specified level.
The fictional order book above shows the difference between the first two.
Numerical example (illustration)
Market order: The aim is to buy 150 units. The first 100 units cost CHF 100.20 each, CHF 10,020 in total. The remaining 50 units are only available one level higher, at CHF 100.30 each, CHF 5,015 in total. Altogether that is CHF 15,035, or around CHF 100.23 per unit on average. That is just over 3 centimes more than the ask price.
Limit order: The aim is to buy 50 units at no more than CHF 100.10. No seller asks that little, because the ask price is CHF 100.20. The order stays in the order book and becomes the new bid price. The spread narrows to CHF 0.10. The purchase only goes through if someone sells at this price. If a counterparty can be found for only part of the quantity, only that part is executed.
Numerical example (illustration)
A market order for 150 units runs through two price levels and costs more than the ask price
Fictional security with the order book from above. The market order first takes the cheapest sell offer and then moves to the next level.
- First level: 100 units at CHF 100.20
The cheapest sell offer is used up. Cost: CHF 10,020.
- Second level: 50 units at CHF 100.30
For the remaining quantity, the order moves one level higher. Cost: CHF 5,015.
- Result: around CHF 100.23 per unit
CHF 15,035 in total for 150 units, just over 3 centimes more than the ask price.
Numerical example by the editorial team, fictional security, no market data and no forecast.
The bid-ask spread as a trading cost
The spread is not invoiced. It is contained in the price. Anyone who buys a security and sells it again straight away pays it.
Numerical example (illustration)
Two fictional securities, 100 units each, prices unchanged, excluding brokerage commission and levies. Security A is traded frequently, security B rarely.
| Security A | Security B | |
|---|---|---|
| Bid price | CHF 100.00 | CHF 99.00 |
| Ask price | CHF 100.20 | CHF 101.00 |
| Purchase of 100 units | CHF 10,020 | CHF 10,100 |
| Immediate sale | CHF 10,000 | CHF 9,900 |
| Cost of the spread | CHF 20 | CHF 200 |
| as a percentage of the purchase price | around 0.2% | around 2% |
How wide the spread is depends on the security. If many orders sit close together in the order book, it is narrow. If a security is rarely traded, the orders are often further apart. Specialists call this liquidity: how easily can a security be bought and sold without the price changing much?
Other costs come on top of the spread. Brokerage commission is the fee the bank or broker charges for execution. The Swiss Federal Tax Administration describes the securities transfer stamp tax as a tax on purchases and sales of securities. It applies to transactions carried out by domestic securities dealers (for example banks and brokers). How high both turn out to be depends on the individual case.
What role do market makers play in ETF trading?
An ETF is an exchange-traded fund. Market makers are trading firms that continuously quote buying and selling prices. In ETF trading on SIX, they must quote bid and ask prices. They keep these within a maximum spread and remain in the order book during official trading hours. At least one market maker must be appointed for each ETF. According to SIX, market makers are among the important liquidity providers in ETF trading.
How such a product is structured and what applies if the provider goes bankrupt is explained in the article ETP or ETF: What sets them apart and what happens in an insolvency?.
How narrow the spread must be at most depends on the asset class. The table shows a selection of asset classes:
| Asset class of the ETF | Maximum spread |
|---|---|
| Money market (short-term debt securities) | 0.1% |
| Government bonds with a term of more than 3 years, corporate bonds with good credit quality | 1.0% |
| Emerging market bonds, bonds with weaker credit quality | 2.0% |
Selection of asset classes, figures from the SIX page on ETF trading, accessed on 28 October 2026. Credit quality describes how able a debtor is to pay. The requirements apply on a monthly basis. SIX governs the admission of trading participants, market makers and liquidity providers in Directive 1 (in force since 2 March 2026).
Where a product is traded and what key figures it has can be found in the factsheet, which the article How to read a factsheet explains using an example.
Risks and limitations
- Losses: Securities can lose value. The spread is added with every purchase and sale and can increase losses.
- No guarantee of execution: A limit order is only executed if the other side reaches the price. It may remain unexecuted or be executed only in part.
- Price for market orders: The price is not fixed. As in the example, the average price can be above the ask price. With few orders in the order book, the difference can be larger.
- Prices change: According to SIX, the displayed price is the last trade concluded, not the current bid or ask price. The price can change between display and execution.
- Wide spread: For rarely traded securities, it can increase costs significantly, as with security B.
- Market makers: The information applies to ETF trading on SIX. The fact that market makers must quote prices does not mean that every order is executed at the desired price. Rules can change.
- Simplification: The examples are invented, with round values and excluding brokerage commission and levies. Real order books change constantly. Taxes and levies depend on personal circumstances.
Conclusion
The bid-ask spread is the gap between the price at which sellers trade and the price at which buyers trade. It arises in the order book, where the best price is matched first. In the example, a market order can run through several price levels, while a limit order fixes the price but does not guarantee execution. Alongside brokerage commission and levies, the spread is part of the trading costs and varies from security to security.
Questions & Answers
Common questions around this topic, briefly answered.
How do I calculate the bid-ask spread as a percentage?
A common calculation divides the spread by the mid price, that is the average of the bid and ask prices. A simpler version uses the ask price. In the example, both versions give around 0.2%.
Is a market order always executed at the displayed price?
No. With a market order («unlimited» at SIX), the price is not fixed. In the example, an order for 150 units runs through two price levels and costs around CHF 100.23 on average instead of CHF 100.20.
Is the bid-ask spread a fee?
No. It does not appear on any invoice but is contained in the price difference between buying and selling. Brokerage commission and securities transfer stamp tax are separate cost components. The Swiss Federal Tax Administration describes the transfer stamp tax as a tax on purchases and sales of securities by domestic securities dealers (for example banks and brokers).
When does the bid price apply and when the ask price?
Sellers receive the bid price. Buyers pay the ask price. The ask price is higher than the bid price.
What do market makers do in ETF trading?
According to SIX, market makers in ETF trading on SIX must quote bid and ask prices and keep them within a maximum spread. At least one market maker must be appointed for each ETF.
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