The bid is the highest price a potential investor is willing to pay for a stock, bond, commodity, or other asset. The ask is the lowest price a seller is prepared to accept for the same asset. The difference, or “spread,” between those two is called the bid-ask spread.

　　Low volatility. When buyers and sellers basically agree on the fair value of a security or asset, the price doesn’t need to move much for a transaction to occur (resulting in low price action).High liquidity. In the stock market and other high-volume securities markets, market makers use complexalgorithms and arbitrage strategies, spread across several trading venues, to keep markets in line. Stocks with high daily trading volume, such as Apple (AAPL) and Tesla (TSLA), have many participants at all times throughout the trading day, so the bid-ask spread is typically just a penny or two.The wider the bid-ask spread, the more a price might need to move (up or down) to entice a buyer and seller to agree on a transaction. For example, consider home prices. During and after the Great Recession of 2007–09, a glut of home foreclosures created a “buyer’s market,” when the seller of a home needed to reduce the asking price by 10% to 20% or more in order to attract a buyer. In contrast, after the COVID-19 pandemic, a shortage of available homes led to bidding wars, resulting buyers offering thousands of dollars above the listed asking price.

　　Doug Ashburn