Disclosure: This post has affiliate links. Arocol may earn a small commission at no extra cost to you. As an Amazon Associate I earn from qualifying purchases. Read our disclosure.
Rohit had been watching one small-cap share for a week. He had never heard of the bid-ask spread.
On Monday morning his app showed ₹84.20. He’d read somewhere that it “could double”. So he typed 500 shares, tapped Buy at market, and felt very smart for about three seconds.
Then the order confirmation came.
Average price: ₹86.49.
Not ₹84.20. Almost ₹2.30 more per share. Over ₹1,100 gone on 500 shares, and the price hadn’t even moved yet.
His first thought was, “The app cheated me.”
Did it? Hold that thought. By the end of this article you’ll know exactly where Rohit’s ₹1,100 went, and how to make sure it never happens to you.
It all comes down to the bid-ask spread, and how it decides what you really pay.
So what is the bid-ask spread, in simple words?
Think of your local sabzi mandi.
The seller shouts, “Tomatoes, ₹40 a kilo!”
You say, “₹36 dega.”
Nobody has agreed yet. The seller’s price is ₹40. Your price is ₹36. That gap of ₹4? That’s the bid-ask spread.
A deal only happens when someone moves. You agree to ₹40, or the seller comes down to ₹36, or you meet in the middle.
The stock market works exactly like this. Just with lakhs of buyers and sellers, and computers matching them in microseconds.
- Bid: the highest price any buyer will pay right now.
- Ask (also called offer): the lowest price any seller will accept right now.
- Bid-ask spread: the gap between the two.
Bid ₹99.90 and ask ₹100.00? The spread is 10 paise. Tiny.
Bid ₹84.20 and ask ₹85.90? The spread is ₹1.70. That’s the one Rohit walked into.
Then what is the “price” my app shows?
Here’s the part nobody tells you.
That big number on your app is usually the LTP, the last traded price. It’s simply where the last deal happened. Maybe two seconds ago. In a quiet share, maybe twenty minutes ago.
It’s not the price you’ll get.
When you buy, you usually pay the ask. When you sell, you usually get the bid.
So when Rohit saw ₹84.20, that was old news. The cheapest seller at that moment wanted ₹85.90. And a market order means “buy at whatever sellers are asking”. So he paid it.
But that still doesn’t explain ₹86.49, does it? Keep reading.
Where can I see the real bid and ask prices (market depth)?
In your trading app, open any share and tap Market Depth.
Never tapped it? Try it today. It’s like seeing a restaurant’s kitchen for the first time.
This is the order book: a live list of everyone waiting to buy and sell. Here’s how to read it:
- Left side (Bid): buyers, highest price on top. That’s the best bid.
- Right side (Ask/Offer): sellers, lowest price on top. That’s the best ask.
- Quantity: how many shares are waiting at each price.
- Orders: how many separate orders make up that quantity.
- Total bid qty vs total ask qty: a rough feel of each side.
Does more buy quantity mean the price will go up?
No. And this one fools a lot of people.
Telegram groups love saying, “Total buy quantity is more, stock will fly!”
It doesn’t work like that. Orders get added and cancelled every second. Big players often hide their real size.
Use market depth to understand the price. Not to predict it.
How does a trade actually happen?
When you place an order, the exchange (NSE or BSE) checks the order book:
- Your buy price is equal to or above the best ask? It matches instantly. Done.
- Your buy price is below the best ask? Your order joins the queue on the bid side and waits.
- Same price? First come, first served.
Selling works the same way, in reverse.
So when a price “goes up”, what’s really happening? Buyers keep accepting sellers’ asks, and sellers keep raising what they ask.
When it “falls”? Sellers keep hitting buyers’ bids, and buyers keep lowering theirs.
No magic. Just people agreeing on new prices.
Why does the bid-ask spread cost me money?
Let’s try a little test.
You buy a share and sell it again the very next second. The price doesn’t move at all.
- You buy at the ask: ₹85.90
- You sell at the bid: ₹84.20
- You lose ₹1.70 a share. That’s about 2%, before brokerage and taxes.
Surprised?
That’s the hidden cost of the bid-ask spread. It never shows up as a “charge” on your contract note. That’s why people miss it. But it’s real money leaving your pocket.
If you buy a big, busy company once and hold it for years, a 5 or 10 paise spread hardly matters.
But if you trade in and out every day, especially in small, quiet shares? The spread can eat most of your profit. It’s one quiet reason so many intraday traders lose money. I’ve written about that in trading vs investing.
How do I know if a bid-ask spread is big or small?
Don’t look at rupees. Look at the bid-ask spread as a percentage.
A ₹1 spread on a ₹2,000 share is nothing. A ₹1 spread on a ₹20 share is huge.
Spread % = (Ask − Bid) ÷ Ask × 100
- Big company: bid ₹1,499.90, ask ₹1,500.00. Spread = about 0.007%. Practically nothing.
- Small company: bid ₹84.20, ask ₹85.90. Spread = about 2%. That’s a big hidden cost.
A simple rule you can use: if the spread is more than 0.5% of the price, skip the market order. And think twice about whether you really want that share.
So where did Rohit’s extra money go?
Remember his ₹86.49 average? Here’s the full answer.
The best ask only has a limited number of shares. If you want more than that, your order “walks up” the order book to the next sellers. And they want more.
This is what the sell side looked like when Rohit pressed buy:
| Ask price | Shares available |
|---|---|
| ₹85.90 | 120 |
| ₹86.30 | 200 |
| ₹86.95 | 150 |
| ₹87.80 | 400 |
His market order for 500 shares did this in a split second:
- 120 shares at ₹85.90
- 200 shares at ₹86.30
- 150 shares at ₹86.95
- The last 30 shares at ₹87.80
Average: about ₹86.49.
So the app didn’t cheat him. Two things did:
- The spread: ₹84.20 was the last trade, but the cheapest seller wanted ₹85.90.
- Impact cost: his big order ate through four levels of sellers, each one costlier than the last.
What if he’d used a limit order at ₹86.00? He’d have got the first 120 shares, and the rest would have waited for sellers to come down. Slower, yes. But he’d have stayed in control of his money.
Impact cost is also why big mutual funds buy slowly over days, in small pieces. If they bought everything at once, they’d push the price up against themselves.
Why are some spreads tiny and others huge?
The bid-ask spread mostly depends on one word: liquidity. That just means how many people are trading that share.
- Busy, large companies (like the Nifty 50 ones) have thousands of buyers and sellers every minute. So the spread is usually just a few paise.
- Small, quiet companies may have only a handful of orders on each side. The gap can be 1%, 2% or more.
- Time of day: in the first few minutes after 9:15 am, spreads often widen because prices are jumping around.
- News and results: right after big news, many traders pull their orders. The spread can suddenly widen.
- Price level: every share moves in small fixed steps called the tick size. On a very cheap share, even one tick is a big percentage.
And what happened to Rohit’s “could double” share?
The spread was so wide that even when the app showed it up 3%, selling at the bid would have given him almost nothing. He held it for two years.
It didn’t double.
Do ETFs have a bid-ask spread too?
Yes. And this one is sneaky.
ETFs trade on the exchange like shares, so they have a bid-ask spread too. Popular Nifty 50 ETFs are usually very liquid. Some smaller ETFs can be surprisingly thin.
Here’s a simple check. ETFs publish an indicative value called iNAV during market hours, usually on the fund house website. If the price you’re paying is far above the iNAV, the spread (or a temporary premium) is working against you.
Two easy fixes: check the iNAV before buying, and use a limit order.
New to ETFs? My index funds guide explains when an index fund might suit you better.
What about options?
The bid-ask spread in options is often much wider than in shares. Especially for strikes far from the current price.
Imagine buying a cheap-looking option at ₹4 when the bid is ₹3.20. That’s a 20% loss the moment you click buy.
Looks like a bargain. The spread is the real price tag.
It’s one more reason SEBI keeps warning that most retail traders in futures and options lose money.
Does crypto have a bid-ask spread?
Yes, exactly the same idea.
Crypto exchanges run order books with bids and asks. Big, popular coins usually have tighter spreads. Small, new coins can have very wide ones, and the price can jump a lot between one level and the next.
A few things are different in India, though:
- Crypto isn’t regulated by SEBI like shares are. For investor basics, see SEBI’s investor education site.
- Gains on crypto (officially “virtual digital assets”) are taxed at a flat 30%.
- A 1% TDS applies on many sales.
- A loss on one coin can’t be set off against a gain on another.
This isn’t a suggestion to buy crypto. It’s just a reminder that the hidden spread cost doesn’t disappear on a different app.
How can I avoid paying too much spread?
Good news: you can cut your bid-ask spread cost with a few simple habits.
- Check market depth before you buy. One tap. If the gap looks big compared to the price, slow down.
- Use limit orders, not market orders, especially in small companies and ETFs. A limit order says, “I’ll pay up to this much, not a paisa more.”
- Skip the first 15 minutes after the market opens unless you really need to trade. Spreads settle down after the opening rush.
- Be careful with very cheap, thinly traded shares. A cheap share isn’t a bargain if you can’t sell it at a fair price later.
- Don’t place big orders in thin shares all at once. Remember Rohit’s four levels.
- Think long term. Hold a good investment for years and a small spread becomes a tiny part of your return. Trade daily and it adds up fast.
Can a limit order go wrong too?
Yes. In the other direction.
I once set my limit price so low on an ETF that the order sat unfilled for a whole week. Meanwhile, the price went up. I “saved” 20 paise and missed the whole move.
So here’s the balance: in busy, liquid shares, set your limit close to the ask. Be strict only in thin ones.
Market order or limit order: which one should I use?
| Market order | Limit order | |
|---|---|---|
| Price you pay | Whatever the best seller is asking (or more, for big orders) | Your price or better, never worse |
| Will it fill? | Almost always, immediately | Only if someone agrees to your price |
| Good for | Very liquid shares when speed matters | Most situations, especially small shares and ETFs |
| Risk | Paying more than you expected | Missing the trade if the price runs away |
For most beginners, the answer is a limit order. Stop-loss, GTT and other order types work a little differently, so check your broker’s help page before you use them.
Who is on the other side of my trade?
Every time you buy, someone is selling to you at that exact second.
Could be another small investor. A mutual fund trimming its holding. A foreign fund. Or a computer program run by a trading firm.
You’ll never know who. That’s by design. The exchange matches orders anonymously, and the clearing corporation guarantees the trade, so nobody can run away without paying.
But here’s a thought worth keeping.
When you’re buying because “it’s sure to go up”, the person selling to you clearly thinks otherwise. One of you will be right.
Fast trading firms are a big part of the crowd in popular shares. They place and cancel orders all day and earn tiny amounts from the spread, again and again. Their competition is one reason spreads in big companies are so narrow. Good for you, as long as you don’t try to beat them at quick in-and-out trades.
Are there market makers in India?
Mostly no, for normal shares.
In some markets abroad, firms called market makers are paid to always quote both a bid and an ask. In India, most shares on NSE and BSE don’t have one. Liquidity comes from the crowd.
Two exceptions: small companies on the SME platforms have market makers for a period after listing, and ETFs have market maker arrangements to keep prices close to their real value. That’s why big ETFs usually have tight spreads, and tiny ones sometimes don’t.
Does my broker keep the spread?
No. In Indian exchange trading, the bid-ask spread isn’t a broker fee. It’s just the gap between real buyers and real sellers. Your broker charges brokerage separately.
And a couple more myths while we’re here:
- “The LTP is the real price.” It’s only the last trade. What you pay is decided by the order book right now.
- “Spreads don’t matter for small amounts.” They do, in percentage terms. A 2% spread costs 2% whether you invest ₹1,000 or ₹1 lakh.
Can ChatGPT tell me if a bid-ask spread is too wide?
It can do the maths. Paste the bid and ask and ask, “What is the bid-ask spread as a percentage?” Quick and handy.
But it can’t see the live order book, and it shouldn’t pick shares for you. If any app or “AI tipster” promises sure-shot profits, walk away, and report it on SEBI SCORES if you’ve been cheated.
Where AI really helps is planning your money. Here’s how I use it for budget planning with AI.
Quick answers to common questions
Is a small spread good or bad?
Good. A small bid-ask spread means the share is liquid and you lose very little when you buy or sell.
Do mutual funds have a bid-ask spread?
Regular mutual funds don‘t. You buy and sell directly with the fund at that day’s NAV. ETFs, which trade on the exchange, do.
Why did my order fill at a different price than the app showed?
The app usually shows the last traded price. A market order fills at the best price available right now, which can be different, especially in fast or thin shares.
Should beginners always use limit orders?
Mostly, yes. In very liquid shares, a limit close to the ask usually fills quickly anyway.
So what’s the one habit to remember?
Before you buy any share or ETF, tap Market Depth and check the bid-ask spread.
That’s it. Five seconds.
If Rohit had done that on Monday morning, he’d have seen the ₹1.70 gap, used a limit order, and stayed in control of his money instead of losing ₹1,100 in three seconds.
Haven’t opened a demat account yet? My step-by-step demat guide walks you through it, including the safety settings to turn on. Many beginners start with Angel One, and I’ve listed it on my Money Tools & Deals page. And if you’d rather read before you trade, here are some well-reviewed stock market books for beginners in India.
Recommended reads
- Stock Market for Beginners in India: How It Really Works
- Trading vs Investing in India: Which Is Right for You?
- How to Open a Demat Account in India: A Beginner’s Guide
- Index Funds in India: A Simple Guide for Beginners
- Share Market vs Mutual Funds: Which Is Better for Beginners?
This article is for education only and is not investment advice or a recommendation to buy or sell any security. Prices and examples are illustrative, and Rohit’s story is an example to explain the idea. Investments in the securities market are subject to market risks. Please read all related documents carefully before investing.
